

NOTE 15 – STOCK-BASED COMPENSATION PLANS

The following table presents compensation expense and related tax benefits for all equity awards recognized in the consolidated statements of income:



	2015			2014			2013
	(in thousands)
Compensation expense	$	5,938		$	5,865		$	5,330
Tax benefit	(2,011		)	(1,608		)	(1,475		)
Stock-based compensation, net of tax	$	3,927		$	4,257		$	3,855

The tax benefit shown in the preceding table is less than the benefit that would be calculated using the Corporation’s 35% statutory federal tax rate. Tax benefits are only recognized over the vesting period for awards that ordinarily will generate a tax deduction when exercised, in the case of non-qualified stock options, or upon vesting, in the case of restricted stock. No non-qualified stock options were granted in 2015 and 2014 and 50,000 non-qualified stock options were granted in 2013.

The following table presents compensation expense and related tax benefits for restricted stock awards, RSUs and PSUs recognized in the consolidated statements of income, and included as a component of total stock-based compensation in the preceding table:



	2015			2014			2013
	(in thousands)
Compensation expense	$	4,646		$	4,345		$	3,705
Tax benefit	(1,626		)	(1,510		)	(1,297		)
Restricted stock compensation, net of tax	$	3,020		$	2,835		$	2,408

The following table provides information about stock option activity for the year ended December 31, 2015:



	Stock Options		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value (in millions)
Outstanding as of December 31, 2014	4,302,464		$	12.89
Exercised	(490,151	)	10.21
Forfeited	(83,878	)	14.09
Expired	(748,348	)	16.80
Outstanding as of December 31, 2015	2,980,087		$	12.31	4.1 years	$	4.6
Exercisable as of December 31, 2015	2,630,235		$	12.34	3.6 years	$	4.3

The following table provides information about nonvested stock options, restricted stock, RSUs and PSUs granted under the Employee Equity Plan and Directors' Plan for the year ended December 31, 2015:



	Nonvested Stock Options				Restricted Stock/RSUs/PSUs
	Options		Weighted Average Grant Date Fair Value		Shares		Weighted Average Grant Date Fair Value
Nonvested as of December 31, 2014	755,964		$	2.68	1,063,087		$	11.83
Granted	—		—		581,719		12.04
Vested	(393,862	)	2.56		(250,807	)	10.48
Forfeited	(12,250	)	2.77		(5,610	)	12.05
Nonvested as of December 31, 2015	349,852		$	2.82	1,388,389		$	12.16

As of December 31, 2015, there was $7.8 million of total unrecognized compensation cost related to nonvested stock options, restricted stock, RSUs and PSUs that will be recognized as compensation expense over a weighted average period of two years. As of December 31, 2015, the Employee Equity Plan had 11.5 million shares reserved for future grants through 2023, and the Directors’ Plan had 396,000 shares reserved for future grants through 2021.

The following table presents information about stock options exercised:



	2015		2014		2013
	(dollars in thousands)
Number of options exercised	490,151		215,047		451,102
Total intrinsic value of options exercised	$	1,442	$	568	$	1,612
Cash received from options exercised	$	4,936	$	2,068	$	3,650
Tax deduction realized from options exercised	$	1,389	$	530	$	1,416

Upon exercise, the Corporation issues shares from its authorized, but unissued, common stock to satisfy the options.

The fair value of stock option awards under the Employee Equity Plan was estimated on the grant date using the Black-Scholes valuation methodology, which is dependent upon certain assumptions, as summarized in the table below. No options were granted in 2015 under the Employee Equity Plan.



	2014		2013
Risk-free interest rate	2.44	%	1.27	%
Volatility of Corporation’s stock	28.05	%	27.64	%
Expected dividend yield	2.36	%	2.48	%
Expected life of options	7 Years		7 Years

The expected life of the options was estimated based on historical activity. Volatility of the Corporation’s stock was based on historical volatility for the period commensurate with the expected life of the options. The risk-free interest rate is the zero-coupon U.S. Treasury rate commensurate with the expected life of the options on the date of the grant.

Based on the assumptions above, the Corporation calculated an estimated fair value per option of $3.14 and $2.49 for options granted in 2014 and 2013, respectively. The Corporation granted 288,626 options in 2014 and 617,869 options in 2013.

The fair value of certain PSUs with market-based performance conditions granted in 2015 under the Employee Equity Plan was estimated on the grant date using the Monte Carlo valuation methodology performed by a third-party valuation expert. This valuation is dependent upon certain assumptions, as summarized in the following table:



Risk-free interest rate	0.86	%
Volatility of Corporation’s stock	20.08	%
Expected life of PSUs	3 Years

The expected life of the PSUs with fair values measured using the Monte Carlo valuation methodology was based on the defined performance period of three years. Volatility of the Corporation’s stock was based on historical volatility for the period commensurate with the expected life of the PSUs. The risk-free interest rate is the zero-coupon U.S. Treasury rate commensurate with the expected life of the PSUs on the date of the grant. Based on the assumptions above, the Corporation calculated an estimated fair value per PSU granted in 2015 of $10.66.

Under the ESPP, eligible employees can purchase stock of the Corporation at 85% of the fair market value of the stock on the date of purchase. The ESPP is considered to be a compensatory plan and, as such, compensation expense is recognized for the 15% discount on shares purchased. The following table summarizes activity under the ESPP:



	2015		2014		2013
ESPP shares purchased	121,890		132,640		141,608
Average purchase price per share (85% of market value)	$	10.86	$	10.31	$	10.02
Compensation expense recognized (in thousands)	$	234	$	241	$	251