Stock-Based Compensation

Under the

Company’s equity incentive plans, directors and eligible employees

may

be granted incentive or non-statutory stock options and/or restricted stock units, or awarded non-vested stock.

As of

March

31,

2017,

the only options granted by the Company were non-statutory stock options to selected Bank officers and non-employee directors at exercise prices equal to the fair market value of a share of the Company’s common stock on the date of grant. Such options have a maximum

ten

-year term and vest in

20%

annual increments (subject to early termination in certain events). There were no options granted during the

first

quarter of

2017

2016.

Option compensation expense was

zero

for the

three

months ended

March

31,

2017,

and

March

31,

2016.

Stock-based compensation was fully recognized over the requisite service period for all awards. There were

18,040

and

2,110

stock option shares exercised in the

first

quarter ended

March

31,

2017

and

2016,

respectively. The Company received

$422,000

from the exercise of stock options which had an aggregate intrinsic value of

$262,000

during the

first

quarter ended

March

31,

2017

compared to

$49,000

from the exercise of stock options which had an aggregate intrinsic value of

$9,000

during the

first

quarter ended

March

31,

2016.

The table below summarizes stock option activity for the periods indicated:

	Shares			Weighted-average Exercise Price		Weighted-average Remaining Contractual Life (in years)		Aggregate Intrinsic Value (in thousands)

Balance, December 31, 2016		82,670		$	23.37		1.1	$	1,211
Exercised		(18,040	)		23.37
Balance, March 31, 2017		64,630		$	23.37		0.9	$	925
Exercisable, March 31, 2017		64,630		$	23.37		0.9	$	925

In addition to stock options, the Company also grants restricted stock units to e

ligible employees that vest subject to continued employment at the vesting dates.

The Company grant

ed restricted stock units for

87,781

shares at an average closing price of

$38

.59

per share in the

first

quarter of

2017.

The Company granted restricted stock units for

88,693

shares at an average closing price of

$30.37

per share in

2016.

Starting i

December

2013,

the Company granted performance share unit awards in which the number of units earned is calculated based on the relative total shareholder return (TSR) of the Company’s common stock as compared to the TSR of the KBW Regional Banking Index. In addition, the Company granted performance share unit awards in which the number of units earned is determined by comparison to the targeted earnings per share (EPS) as defined in the award for the

2014

2016

period. In

December

2016,

in addition to TSR and EPS awards, the Company granted performance share unit awards in which the number of units earned is determined by comparison to the targeted return of assets ROA as defined in the award for

December

2016.

Performance TSR, performance EPS, and performance ROA units awarded are scheduled to vest on

December

of the

third

full year from the grant date. The Company granted performance TSR restricted stock units for

30,319

shares in

2016,

61,209

shares in

2015

and

60,456

shares in

2014,

performance EPS restricted stock units for

58,241

shares in

2016,

57,409

shares in

2015

and

57,642

shares in

2014,

and performance ROA restricted stock units for

29,119

shares in

2016,

to its

seven

executive officers. In

February

2017,

after approval by the Company’s Compensation Committee,

297,171

shares of the Company’s stock were distributed under the TSR and EPS grants awarded in

December

2013

under the terms of the awards

, including

76,623

shares granted and distributed based on higher than target actual performance and for cash dividends during the performance period

The following table presents restricted stock unit

activity during the

three

months ended

March

31,

2017:

	Units
Balance at December 31, 2016		727,419
Granted		164,404
Distributed		(297,171	)
Forfeited		(1,367	)
Balance at March 31, 2017		593,285

The compensation expense recorded for restricted stock units was $

1.2

million for the

first

quarter ended

March

31,

2017

, compared to

$1.0

million in the same period a year ago. Unrecognized stock-based compensation expense related to restricted stock units was

$12.1

million as of

March

31,

2017,

and is expected to be recognized over the next

2.4

years.

As of

March

31,

2017,

3,471,754

shares were available under the Company’s

2005

Incentive Plan (as Amended and Restated) for future grants.

ax benefit from share-based payment arrangements of

$2.6

million reduced income tax expense in the

first

quarter of

2017

compared to a tax short-fall of

$3.3

million that was charged to income tax expense in the

first

quarter of

2016.