ISBC 2017 Form 10-K & 2018 Proxy Statement

FORM 10-K INVESTORS BANCORP, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements The fair value of stock options granted as part of the 2015 Plan was estimated utilizing the Black-Scholes option pricing model using the following assumptions for the period presented below: For the Year Ended December 31, 2017 2016 2015 Weighted average expected life (in years) 6.50 7.00 7.43 Weighted average risk-free rate of return 2.05% 1.67% 1.96% Weighted average volatility 24.12% 24.05% 25.33% Dividend yield 2.45% 1.93% 1.59% Weighted average fair value of options granted $ 2.91 $ 2.80 $ 3.12 Total stock options granted 93,800 201,440 11,576,611 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 historical volatility of the Company’s stock. The Company recognizes compensation expense for the fair values of these awards, which have graded vesting, on a straight-line basis over the requisite service period of the awards. Upon exercise of vested options, management expects to draw on treasury stock as the source for shares. The following table presents the share based compensation expense for the years ended December 31, 2017, 2016 and 2015: Years Ended December 31, 2017 2016 2015 (Dollars in thousands) Stock option expense $ 5,994 6,556 2,905 Restricted stock expense 14,548 15,419 6,315 Total share based compensation expense $20,542 21,975 9,220 The following is a summary of the status of the Company’s restricted shares as of December 31, 2017 and changes therein during the year then ended: Number of Shares Awarded Weighted Average Grant Date Fair Value Non-vested at December 31, 2016 5,876,491 $12.51 Granted 440,000 14.38 Vested (1,008,422) 12.52 Forfeited (367,734) 12.51 Non-vested at December 31, 2017 4,940,335 $12.67 Expected future expenses relating to the non-vested restricted shares outstanding as of December 31, 2017 is $51.7 million over a weighted average period of 3.89 years. 118