STOCK-BASED COMPENSATION

Heartland may grant, through its Nominating and Compensation Committee (the "Compensation Committee") non-qualified and incentive stock options, stock appreciation rights, stock awards, restricted stock, restricted stock units and other equity-based incentive awards, under its 2012 Long-Term Incentive Plan (the "Plan"). The Plan was originally approved by stockholders in May 2012 and was amended effective March 8, 2016, to increase the number of shares of common stock authorized for issuance and make certain other changes to the Plan. At December 31, 2016, 561,332 shares of common stock were reserved for future issuance under awards that may be granted under the Plan to employees and directors of, and service providers to, Heartland or its subsidiaries.

FASB ASC Topic 718, "Compensation-Stock Compensation" requires the measurement of the cost of employee services received in exchange for an award of equity instruments based upon the fair value of the award on the grant date. The cost of the award is based upon its fair value estimated on the date of grant and recognized in the consolidated statements of income over the vesting period of the award. The fair market value of restricted stock and restricted stock units is based on the fair value of the underlying shares of common stock on the date of grant. The fair value of stock options is estimated on the date of grant using the Black-Scholes model.

The amount of tax benefit related to the exercise, vesting, and forfeiture of equity-based awards reflected in additional paid-in-capital, not taxes payable, was $374,000, and $676,000, for the years ended December 31, 2016, and 2015, respectively.

Options

Although the Plan provides authority to the Compensation Committee to grant stock options, no options were granted during the years ended December 31, 2016, 2015 and 2014. Prior to 2009, options were typically granted annually with an expiration date 10 years after the date of grant. Vesting was generally over a five-year service period with portions of a grant becoming exercisable at three years, four years and five years after the date of grant. The exercise price of stock options granted is established by the Compensation Committee, but the exercise price for the stock options may not be less than the fair market value of the shares on the date that the options are granted or, if greater, the par value of a share of common stock. A summary of the status of Heartland's common stock options as of December 31, 2016, 2015 and 2014, and changes during the years ended December 31, 2016, 2015 and 2014, follows:



	2016				2015				2014
	Shares		Weighted-Average Exercise Price		Shares		Weighted-Average Exercise Price		Shares		Weighted-Average Exercise Price
Outstanding at January 1	125,950		$	24.08	215,851		$	23.85	261,936		$	23.60
Granted	—		—		—		—		—		—
Exercised	(97,800	)	25.59		(86,651	)	23.49		(24,334	)	20.20
Forfeited	(1,750	)	21.10		(3,250	)	23.51		(21,751	)	24.97
Outstanding at December 31	26,400		$	18.60	125,950		$	24.08	215,851		$	23.85
Options exercisable at December 31	26,400		$	18.60	125,950		$	24.08	215,851		$	23.85

At December 31, 2016, the vested options have a weighted average remaining contractual life of 1.07 years. The intrinsic value for the vested options as of December 31, 2016, was $776,000. The intrinsic value for the total of all options exercised during the year ended December 31, 2016, was $1.2 million. No shares under stock options vested during the year ended December 31, 2016. There were no compensation costs recorded for stock options for the years ended December 31, 2016, 2015, or 2014.

Cash received from options exercised for the year ended December 31, 2016, was $2.5 million. Cash received from options exercised for the year ended December 31, 2015, was $2.0 million.

Restricted Stock Units

The Plan permits the Compensation Committee to grant restricted stock units ("RSUs"). In the first quarter of 2016, the Compensation Committee granted time-based RSUs with respect to 72,644 shares of common stock, and in the first quarter of 2015, the Compensation Committee granted time-based RSUs with respect to 78,220 shares of common stock to selected officers. The time-based RSUs, which represent the right, without payment, to receive shares of Heartland common stock at a specified date in the future. The time-based RSUs granted in 2016 vest over three years in equal installments on the first, second and third anniversaries of the grant date. The time-based RSUs granted in 2015 vest over five years in three equal installments on the third, fourth and fifth anniversaries of the grant date. The time-based RSUs may also vest upon death or disability, upon a change in control or upon a "qualified retirement" (as defined in the RSU agreement). The retiree is required to sign a non-solicitation and non-compete agreement as a condition to vesting.

In addition to the time-based RSUs referenced in the preceding paragraph, the Compensation Committee granted performance-based RSUs with respect to 35,516 shares of common stock in the first quarter of 2016, and 39,075 shares of common stock in the first quarter of 2015. These performance-based RSUs are earned based on satisfaction of performance targets for the fiscal years ended December 31, 2016 and December 31, 2015, respectively, and then fully vest two years after the end of the performance period. For the grants awarded in 2016, the portion of the RSUs earned based on performance vest on December 31, 2018, and for the grants awarded in 2015, the portion of the RSUs earned based on performance vest on December 31, 2017, subject to employment on the respective vesting dates. The performance-based RSUs vest to the extent that they are earned upon death or disability, upon a change in control or upon a "qualified retirement" (as defined in the RSU agreement).

The Compensation Committee also granted performance-based RSUs with respect to 11,408 shares of common stock in the first quarter of 2016. These performance-based RSUs will be earned based upon satisfaction of performance targets for the 3 year performance period ended December 31, 2018. These performance-based RSUs will vest in 2019 after measurement of performance in relation to the performance targets.

Upon death, disability or a "qualified retirement," all performance based RSUs granted in 2016 remain outstanding and are earned based on actual performance at the end of each performance period. All RSUs granted on or after March 8, 2016, become fully vested upon a change in control if (1) they are not assumed by the successor corporation or (2) upon an involuntary termination of the participant's employment within two years after the change in control.

All of Heartland's RSUs will be settled in common stock upon vesting and will not be entitled to dividends until vested.

The Compensation Committee also grants RSUs under the Plan to directors as part of their compensation, to new management level employees at commencement of employment, and to other employees and service providers as incentives. During the year ended December 31, 2016, 24,153 RSUs were granted to these participants in the Plan. During the years ended December 31, 2015 and 2014, 22,648 and 31,725 RSUs, respectively, were granted in connection with employment agreements or to board members. The related compensation expense recorded for these grants was $652,000, $665,000, and $442,000 for the respective years.

A summary of the status of RSUs as of December 31, 2016, 2015 and 2014, and changes during the years ended December 31, 2016, 2015, and 2014, follows:



	2016				2015				2014
	Shares		Weighted-Average Grant Date Fair Value		Shares		Weighted-Average Grant Date Fair Value		Shares		Weighted-Average Grant Date Fair Value
Outstanding at January 1	353,195		$	25.53	396,555		$	21.48	353,070		$	18.48
Granted	143,721		29.75		139,943		28.90		131,560		26.71
Vested	(126,614	)	23.83		(152,981	)	18.54		(73,554	)	16.65
Forfeited	(23,485	)	29.80		(30,322	)	23.38		(14,521	)	20.48
Outstanding at December 31	346,817		$	27.61	353,195		$	25.53	396,555		$	21.48

The total fair value of shares under RSUs that vested during the year ended December 31, 2016, was $3.6 million. Total compensation costs recorded for RSUs were $2.6 million, $2.6 million and $2.9 million, for 2016, 2015 and 2014, respectively. As of December 31, 2016, there were $2.9 million of total unrecognized compensation costs related to the Plan for RSUs which are expected to be recognized through 2019.

Employee Stock Purchase Plan

Heartland maintains an employee stock purchase plan (the "ESPP"), which was adopted in May 2016 and replaced the 2006 ESPP, that permits all eligible employees to purchase shares of Heartland common stock at a price of not less than 95% of the fair market value (as determined by the Compensation Committee) on the determination date. A maximum of 500,000 shares is available for purchase under the ESPP, and as of December 31, 2016, 467,755 shares remain available for purchase.

For the year ended December 31, 2016, 32,245 shares were purchased under the ESPP. For the year ended December 31, 2015, 28,788 shares were purchased under the ESPP. For the year ended December 31, 2014, 21,679 shares were purchased under the ESPP. Under ASC Topic 718, compensation expense related to the ESPP of $183,000 was recorded in 2016, $58,000 was recorded in 2015, and $32,000 was recorded in 2014 because the price of the shares purchased was set at the beginning of the year for the purchases at the end of the year.