10. STOCK INCENTIVE PLANS

Restricted Stock

The Corporation issues restricted stock awards, consisting of both restricted stock and restricted stock units, to key employees under its Incentive Compensation Plans (Plans). The Corporation issues time-based awards and performance-based awards under these Plans, 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 the Corporation’s common stock on the grant date. The fair value of the performance-based awards is based on a Monte-Carlo Simulation valuation of the Corporation’s common stock as of the grant date.

The Corporation issued 277,174 and 139,046 performance-based restricted stock units during the first nine months of 2016 and 2015, respectively. Recipients will earn shares, totaling between 0% and 175% of the number of units issued, based on the Corporation’s 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 the Corporation met or exceeded certain financial performance results when compared to its 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. The Corporation also issued discretionary service-based awards to certain employees that vested over five years.

For the nine months ended September 30, 2016 and 2015, the Corporation issued 574,125 and 402,947 restricted stock awards, respectively, with aggregated grant date fair values of $7.4 million and $5.3 million under these plans. As of September 30, 2016, the Corporation had available up to 3,248,296 shares of common stock to issue under the Plans.

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:


	Nine Months Ended September 30,
	2016					2015
	Awards			Weighted Average Grant Price		Awards			Weighted Average Grant Price
Unvested awards outstanding at beginning of period		1,548,444		$	12.85		1,354,093		$	11.86
Granted		574,125			12.86		402,947			13.16
Net adjustment due to performance		—			—		8,884			22.73
Vested		(374,579	)		12.11		(471,997	)		10.66
Forfeited		(21,486	)		12.98		(29,428	)		13.46
Dividend reinvestment		44,534			12.25		30,551			11.32

Unvested awards outstanding at end of period		1,771,038			13.00		1,295,050			12.73

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


(in thousands)	Nine Months Ended September 30,
	2016		2015
Stock-based compensation expense	$	4,644	$	3,287
Tax benefit related to stock-based compensation expense		1,625		1,150
Fair value of awards vested		4,563		5,912

As of September 30, 2016, there was $11.7 million of unrecognized compensation cost related to unvested restricted stock awards, including $0.5 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 September 30, 2016 are as follows:

(dollars in thousands)

Service-
Based
Awards

Performance-
Based
Awards

Total

Unvested restricted stock awards

852,788

918,250

1,771,038

Unrecognized compensation expense

5,520

6,147

11,667

Intrinsic value

10,489

11,295

21,784

Weighted average remaining life (in years)

2.04

2.15

2.10

Stock Options

All outstanding stock options were assumed in connection with certain of the Corporation’s completed acquisitions and are fully vested. Upon consummation of those acquisitions, all outstanding stock options issued by the acquired companies were converted into equivalent Corporation stock options. The Corporation issues 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:


	Nine Months Ended September 30,
	2016					2015
	Shares			Weighted Average Exercise Price		Shares			Weighted Average Exercise Price
Options outstanding at beginning of period		435,340		$	8.86		568,834		$	8.86
Assumed from acquisitions		1,707,036			7.83		—			—
Exercised		(352,094	)		6.89		(88,899	)		5.61
Forfeited		(93,628	)		6.74		(2,182	)		4.34

Options outstanding and exercisable at end of period		1,696,654			8.35		477,753			9.48

The intrinsic value of outstanding and exercisable stock options at September 30, 2016 was $6.7 million.

Warrants

In conjunction with its participation in the U.S. Department of the Treasury’s (UST) Capital Purchase Program (CPP), the Corporation issued to the UST a warrant to purchase up to 1,302,083 shares of the Corporation’s 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 the Corporation 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 the Corporation’s common stock at an exercise price of $3.57 per share. Subsequent adjustments related to actual dividends paid by the Corporation have increased the share amount of these warrants to 386,888, with a resulting lower exercise price of $3.16 per share as of September 30, 2016. The warrant, which was recorded at its fair value on April 6, 2013, was sold at auction by the UST and expires in 2019.