STOCK INCENTIVE PLANS

Restricted Stock

We issue restricted stock awards, consisting of both restricted stock and restricted stock units, to key employees under our Incentive Compensation Plans (Plan). Beginning in 2014, we issue time-based awards and performance-based awards under this Plan, both of which are based on a three-year vesting period. The grant date fair value of the time-based awards is equal to the price of our common stock on the grant date. The fair value of the performance-based awards is based on a Monte-Carlo Simulation valuation of our common stock as of the grant date. The assumptions used for this valuation include stock price volatility, risk-free interest rate and dividend yield.

We issued 251,379 and 277,174 performance-based restricted stock units during the first six months of 2017 and 2016, respectively. For performance-based restricted stock awards granted, the recipients will earn shares, totaling between 0% and 175% of the number of units issued, based on our total stockholder return relative to a specified peer group of financial institutions over the three-year period. These market-based restricted stock units are included in the table below as if the recipients earned shares equal to 100% of the units issued.

Prior to 2014, more than half of the restricted stock awards granted to management were earned if we met or exceeded certain financial performance results when compared to our peers. These performance-related awards were expensed ratably from the date that the likelihood of meeting the performance measure was probable through the end of a four-year vesting period. The service-based awards were expensed ratably over a three-year vesting period. We also issued discretionary service-based awards to certain employees that vested over five years.

The following table details our issuance of restricted stock awards and the aggregate weighted average grant date fair values under these plans for the years indicated. As of June 30, 2017, we had available up to 2,657,259 shares of common stock to issue under this Plan.



	Six Months Ended June 30,
(dollars in thousands)	2017		2016
Restricted stock awards	707,851		571,322
Weighted average grant date fair values	$	10,398	$	7,347

The unvested restricted stock awards are eligible to receive cash dividends or dividend equivalents which are ultimately used to purchase additional shares of stock and are subject to forfeiture if the requisite service period is not completed or the specified performance criteria are not met. These awards are subject to certain accelerated vesting provisions upon retirement, death, disability or in the event of a change of control as defined in the award agreements.

The following table summarizes the activity relating to restricted stock awards during the periods indicated:



	Six Months Ended June 30,
	2017				2016
	Awards		Weighted Average Grant Price		Awards		Weighted Average Grant Price
Unvested awards outstanding at beginning of period	1,836,363		$	12.97	1,548,444		$	12.85
Granted	707,851		14.69		571,322		12.86
Vested	(592,202	)	12.84		(372,928	)	12.10
Forfeited/expired	(14,679	)	13.23		(20,230	)	12.97
Dividend reinvestment	28,454		14.49		27,210		12.30
Unvested awards outstanding at end of period	1,965,787		13.65		1,753,818		13.01

The following table provides certain information related to restricted stock awards:



(in thousands)	Six Months Ended June 30,
	2017		2016
Stock-based compensation expense	$	3,958	$	2,916
Tax benefit related to stock-based compensation expense	1,385		1,021
Fair value of awards vested	8,013		4,542

As of June 30, 2017, there was $16.5 million of unrecognized compensation cost related to unvested restricted stock awards, including $0.9 million that is subject to accelerated vesting under the Plan’s immediate vesting upon retirement provision for awards granted prior to the adoption of ASC 718, Compensation – Stock Compensation. The components of the restricted stock awards as of June 30, 2017 are as follows:



(dollars in thousands)	Service- Based Awards		Performance- Based Awards		Total
Unvested restricted stock awards	1,069,132		896,655		1,965,787
Unrecognized compensation expense	$	9,541	$	6,957	$	16,498
Intrinsic value	$	15,139	$	12,697	$	27,836
Weighted average remaining life (in years)	2.41		2.17		2.30

Stock Options

All outstanding stock options were assumed from acquisitions and are fully vested. Upon consummation of our acquisitions, all outstanding stock options issued by the acquired companies were converted into equivalent FNB stock options. We issue shares of treasury stock or authorized but unissued shares to satisfy stock options exercised.

The following table summarizes the activity relating to stock options during the periods indicated:



	Six Months Ended June 30,
	2017				2016
	Shares		Weighted Average Exercise Price		Shares		Weighted Average Exercise Price
Options outstanding at beginning of period	892,532		$	8.95	435,340		$	8.86
Assumed from acquisitions	207,645		8.92		1,707,036		7.83
Exercised	(155,597	)	9.43		(287,787	)	7.11
Forfeited/expired	(56,510	)	11.17		(93,391	)	6.73
Options outstanding and exercisable at end of period	888,070		8.72		1,761,198		8.26

The intrinsic value of outstanding and exercisable stock options at June 30, 2017 was $4.6 million.

Warrants

In conjunction with our participation in the UST’s CPP, we issued to the UST a warrant to purchase up to 1,302,083 shares of our common stock. Pursuant to Section 13(H) of the Warrant to Purchase Common Stock, the number of shares of common stock issuable upon exercise of the warrant was reduced in half to 651,042 shares on June 16, 2009, the date we completed a public offering. The warrant, which expires in 2019, was sold at auction by the UST and has an exercise price of $11.52 per share.

In conjunction with the Annapolis Bancorp, Inc. (ANNB) acquisition on April 6, 2013, the warrant issued by ANNB to the UST under the CPP has been converted into a warrant to purchase up to 342,564 shares of our common stock at an exercise price of $3.57 per share. Subsequent adjustments related to actual dividends paid by us have increased the share amount of these warrants to 395,650, with a resulting lower exercise price of $3.09 per share as of June 30, 2017. The warrant, which was recorded at its fair value on April 6, 2013, was sold at auction by the UST and expires in 2019.

In conjunction with the YDKN acquisition on March 11, 2017, the warrant issued by YDKN to the UST under the CPP has been converted into a warrant to purchase up to 207,320 shares of our common stock at an exercise price of $9.63 per share. Subsequent adjustments related to actual dividends paid by us have increased the share amount of these warrants to 208,250, with a resulting lower exercise price of $9.59 per share as of June 30, 2017. The warrant, which was recorded at its fair value on March 11, 2017, was sold at auction by the UST and expires in 2019.