. 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

June 30, 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

options granted during the

first

six

months of

2017

2016.

Option compensation expense was

zero

for the

three

months and for the

six

months ended

June 30, 2017,

and

June 30, 2016.

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

37,540

and

2,110

stock option shares exercised in the

six

months ended

June 30, 2017

and

2016,

respectively. The Company received

$877,000

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

$534,000

during the

six

months ended

June 30, 2017

compared to

$49,000

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

$9,000

during the

six

months ended

June 30, 2016.

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

						Weighted-average		Aggregate
				Weighted-average		Remaining Contractual		Intrinsic
	Shares			Exercise Price		Life (in years)		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
Exercised		(19,500	)		23.37
Balance, June 30, 2017		45,130		$	23.37		0.7	$	658

Exercisable, June 30, 2017		45,130		$	23.37		0.7	$	658

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

that vest subject to continued employment at the vesting dates.

The Comp

any granted restricted stock units for

87,781

shares at an average closing price of

$38

.59

per share in the

first

six

months 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 31

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

six

months ended

June 30, 2017:

	Units
Balance at December 31, 2016		727,419
Granted		164,404
Distributed		(297,171	)
Forfeited		(5,362	)
Balance at June 30, 2017		589,290

The compensation expense recorded for restricted stock

units was

$1.4

million for the

three

months ended

June 30, 2017,

compared to

$1.0

million in the same period a year ago. For the

six

months ended

June 30, 2017

and

2016,

compensation expense recorded related to the restricted stock units was

$2.6

million and

$2.1

million, respectively. Unrecognized stock-based compensation expense related to restricted stock units was

$10.6

million as of

June 30, 2017,

and is expected to be recognized over the next

2.2

years.

As of

June 30, 2017,

3,460,349

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

six

months of

2017

compared to a tax short-fall of

$3.4

million that was charged to income tax expense in the

first

six

months of

2016.