Agenda - Council - 11/13/2012 - Laserfiche WebLink

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22. Stock -based Compensation The Bank participates in a BNPP stock option plan where certain members of Bank of the West's senior management team receive stock option awards from BNPP for shares of BNPP stock. The Bank accounts for these stock option awards at their fair values estimated on the grant dates using a trinomial tree pricing model as compensation expense over the vesting or requisite service periods. Upon exercise of the stock options, the Bank's senior management team receives shares of BNPP stock. The stock options were awarded in the years 2003 through 2011. The options do not vest until after the fourth year, at which time they are exercisable from the fourth anniversary through the tenth anniversary date (the expiration date) for the 2003 and 2004 grants and through the eighth anniversary date for the 2005 through 2011 grants. The range of exercise prices for the 2003-2011 options were $52.81 through $115.18. As of December 31, 2011, no stock options had expired. Annual stock option awards are recognized over the vesting period and reflected as compensation expense, which was $2.6 million and $2.3 million for the years ending December 31, 2011 and 2010, respectively. The related income tax benefit was $1.0 million and $0.9 million for the years ended December 31, 2011 and 2010, respectively. The following table is a summary of stock option activity: Weighted -Average Remaining Weighted -Average Contractual Life Number Exercise Price (in years) Options outstanding as of January 1, 2010: 819,960 $92.93 Granted 87,735 69.77 Exercised (8,217) 65.04 Forfeited (46,843) 88.81 Options outstanding as of December 31, 2010 852,635 91.04 2011: Granted 90,569 $78.95 Exercised (12,847) 62.32 Forfeited (5,854) 75.49 Options outstanding as of December 31, 2011 924,503 4.79 4.00 90.32 3.33 The total fair value of vested options and options exercised was $5.9 million and $0.5 rnillion in 2011 and $4.8 million and $0.3 rnillion in 2010, respectively. The fair value of each stock option was estimated on the date of grant using a trinomial tree pricing model. The implied volatility used in measuring stock options is estimated on the basis of a range of ratings prepared by various dealing rooms. The level of volatility used by the Bank takes into account historical volatility trends for the Dow Jones Euro Stoxx Bank index and BNPP shares over a 10-year period. The weighted -average grant -date fair values of options granted during the years 2011 and 2010 were $31.37 and $34.28, respectively. Total unrecognized compensation costs related to nonvested shares was $5.1 rnillion and $6.4 rnillion and the weighted -average period in which these costs will be recognized was 2.24 and 2.17 years at December 31, 2011 and 2010, respectively. The following table presents the weighted - average assumptions used. 2011 2010 Dividend yield 4.3% 2.0% Expected volatility 28.5% 30.4% Risk free interest rate 3.5% 3.1% Expected life (in years) 8 8 -58- 2011 Bank of the West Annual Report