Note

Stock-

Based Compensation

The Company maintains the

2016

Stock Plan

(“2016

Plan”), the

2006

Stock Plan

(“2006

Plan”) and the

2011

Employee Stock Purchase Plan

(“2011

ESPP”).

In connection with the acquisition of

Fidelity, the Company assumed the Fidelity

2004

Long Term Incentive Plan and the

2005

Long Term Incentive Plan (the “Fidelity Plans”).

In connection with the acquisition of Virginia Heritage, the Company assumed the Virginia Heritage

2006

Stock Option Plan and the

2010

Long Term Incentive Plan (the “Virginia Heritage Plans”).

additional options

may

be granted under the

2006

Plan, the Fidelity Plans, or the Virginia Heritage Plans.

The Company adopted the

2016

Plan upon approval by the shareholders at the

2016

Annual Meeting held on

May

12,

2016.

The

2016

Plan provides directors and selected employees of the Bank, the Company and their affiliates with the opportunity to acquire shares of stock, through awards of options, time vested restricted stock, performance-based restricted stock and stock appreciation rights. Under the

2016

Plan,

1,000,000

shares of common stock were initially reserved for issuance.

For awards that are service based, compensation expense is being recognized over the service (vesting) period based on fair value, which for stock option grants is computed using the Black-Scholes model. For restricted stock awards granted under the

2006

plan, fair value is based on the average of the high and low stock price of the Company’s shares on the date of grant. For restricted stock awards granted under the

2016

plan, fair value is based on the Company’s closing price on the date of grant. For awards that are performance-based, compensation expense is recorded based on the probability of achievement of the goals underlying the grant.

February

2017,

the Company awarded

91,097

shares of time vested restricted stock to senior officers, directors, and certain employees. The shares vest in

three

substantially equal installments beginning on the

first

anniversary of the date of grant.

February

2017,

the Company awarded senior officers a targeted number of

36,523

performance vested restricted stock units (PRSUs). The vesting of PRSUs is

100%

after

three

years with payouts based on threshold, target or maximum average performance targets over the

three

year period relative to a peer index. The

three

performance metrics are average annual earnings per share growth, average annual total shareholder return and average annual return on average assets, in each case as compared to companies in the KBW Regional Banking Index.

Below is a summary of stock option activity for the

three

months ended

March

31,

2017

and

2016.

The information excludes restricted stock units and awards.

	Three Months Ended March 31,
	2017					2016
	Shares			Weighted- Average Exercise Price		Shares			Weighted- Average Exercise Price

Beginning balance		216,859		$	8.80		298,740		$	9.97
Issued		-			-		-			-
Exercised		(2,675	)		24.67		(16,759	)		11.80
Forfeited		-			-		(1,100	)		15.48
Expired		-			-		(6,037	)		13.57
Ending balance		214,184		$	8.60		274,844		$	9.76

The following summarizes information about stock options outstanding at

March

31,

2017.

The information excludes restricted stock units and awards.

Outstanding:		Stock Options		Weighted-Average		Weighted-Average Remaining
Range of Exercise Prices		Outstanding		Exercise Price		Contractual Life
$5.76	$10.72		154,535	$	5.76		1.56
$10.73	$15.45		47,886		10.83		1.18
$15.46	$20.01		447		16.66		5.97
$20.02	$49.91		11,316		37.59		7.77
			214,184	$	8.60		1.81

Exercisable:		Stock Options		Weighted-Average
Range of Exercise Prices		Exercisable		Exercise Price
$5.76	$10.72		119,837	$	5.76
$10.73	$15.45		47,886		10.83
$15.46	$20.01		447		16.66
$20.02	$49.91		2,906		22.20
			171,076	$	7.49

The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option pricing model with the assumptions as shown in the table below used for grants during the years ended

December

31,

2016

and

2015.

There were no grants of stock options during the

three

months ended

March

31,

2017.

	Three Months Ended		Years Ended December 31,
	March 31, 2017		2016			2015
Expected volatility		n/a		24.23	%		31.21	%
Weighted-Average volatility		n/a		24.23	%		31.21	%
Expected dividends		-		-			-
Expected term (in years)		n/a		7.0			7.0
Risk-free rate		n/a		1.37	%		1.64	%
Weighted-average fair value (grant date)		n/a	$	14.27		$	16.73

The total intrinsic value of outstanding stock options was

$11.0

million at

March

31,

2017.

The total intrinsic value of stock options exercised during the

three

months ended

March

31,

2017

and

2016

was

$103

thousand and

$604

thousand, respectively. The total fair value of stock options vested was

$34

thousand and

$40

thousand for the

three

months ended

March

31,

2017

and

2016,

respectively. Unrecognized stock-based compensation expense related to stock options totaled

$115

thousand at

March

31,

2017.

At such date, the weighted-average period over which this unrecognized expense was expected to be recognized was

2.52

years.

The Company has unvested restricted stock awards and PRSU grants of

247,351

shares at

March

31,

2017.

Unrecognized stock based compensation expense related to restricted stock awards totaled

$10.8

million at

March

31,

2017.

At such date, the weighted-average period over which this unrecognized expense was expected to be recognized was

2.31

years. The following table summarizes the unvested restricted stock awards at

March

31,

2017

and

2016.

	Three Months Ended March 31,
	2017					2016
	Shares			Weighted- Average Grant Date Fair Value		Shares			Weighted- Average Grant Date Fair Value

Unvested at beginning		296,192		$	34.61		369,093		$	24.43
Issued		127,620			61.21		139,732			46.17
Forfeited		(327	)		43.07		(766	)		37.48
Vested		(176,134	)		28.73		(195,188	)		22.53
Unvested at end		247,351		$	52.51		312,871		$	35.29

Approved by shareholders in

May

2011,

the

2011

ESPP reserved

550,000

shares of common stock (as adjusted for stock dividends) for issuance to employees. Whole shares are sold to participants in the plan at

85%

of the lower of the stock price at the beginning or end of each quarterly offering period. The

2011

ESPP is available to all eligible employees who have completed at least

one

year of continuous employment, work at least

hours per week and at least

five

months a year. Participants

may

contribute a minimum of

$10

per pay period to a maximum of

$6,250

per offering period or

$25,000

annually (not to exceed more than

10%

of compensation per pay period). At

March

31,

2017,

the

2011

ESPP had

413,238

shares remaining for issuance.

Included in salaries and employee benefits in the accompanying Consolidated Statements of Operations,

the Company recognized

$1.9

million and

$1.4

million in stock-based compensation expense for the

three

months ended

March

31,

2017

and

2016,

respectively. Stock-based compensation expense is recognized ratably over the requisite service period for all awards.