11.

Stock-Based Compensation

For the years ended

December

31,

2016,

2015

and

2014

the Company’s net income, as reported, includes

$5.9

million,

$4.8

million and

$4.3

million, respectively, of stock-based compensation costs and

$2.3

million,

$1.7

million and

$1.3

million, respectively, of income tax benefits related to the stock-based compensations plans.

The Company estimates the fair value of stock options using the Black-Scholes valuation model at the date of grant. The Company uses the fair value of the common stock on the date of award to measure compensation cost for restricted stock unit awards. Compensation cost is recognized over the vesting period of the award using the straight line method. The Company has

not

granted stock options since

2009.

There were

337,175,

318,120

and

266,895

restricted stock units granted for the years ended

December

31,

2016,

2015

and

2014,

respectively.

The

2014

Omnibus Incentive Plan

(“2014

Omnibus Plan”) became effective on

May

20,

2014

after adoption by the Board of Directors and approval by the stockholders. The

2014

Omnibus Plan authorizes the Compensation Committee of the Company’s Board of Directors (the “Compensation Committee”) to grant a variety of equity compensation awards as well as long-term and annual cash incentive awards, all of which can, but need not, be structured so as to comply with Section

162(m)

of the Internal Revenue Code of

1986,

as amended (the “Internal Revenue Code”). The

2014

Omnibus Plan authorizes the issuance of

1,100,000

shares. To the extent that an award under the

2014

Omnibus Plan is cancelled, expired, forfeited, settled in cash, settled by issuance of fewer shares than the number underlying the award, or otherwise terminated without delivery of shares to a participant in payment of the exercise price or taxes relating to an award, the shares retained by or returned to the Company will be available for future issuance under the

2014

Omnibus Plan. No further awards

may

be granted under the Company’s

2005

Omnibus Incentive Plan,

1996

Stock Option Incentive Plan, and

1996

Restricted Stock Incentive Plan (“Prior Plans”). At

December

31,

2016,

there were

489,320

shares available for delivery in connection with awards under the

2014

Omnibus Plan. To satisfy stock option exercises or fund restricted stock and restricted stock unit awards, shares are issued from treasury stock, if available; otherwise new shares are issued. The exercise price per share of a stock option grant

may

not be less than the fair market value of the common stock of the Company, as defined in the

2014

Omnibus Plan, on the date of grant and

may

not be re-priced without the approval of the Company’s stockholders. Options, stock appreciation rights, restricted stock, restricted stock units and other stock-based awards granted under the

2014

Omnibus Plan are generally subject to a minimum vesting period of

three

years with stock options having a

-year maximum contractual term. Other awards do not have a contractual term of expiration. The Compensation Committee is authorized to grant awards that vest upon a participant’s retirement. These amounts are included in stock-based compensation expense at the time of the participant’s retirement eligibility.

The following table summarizes the Company’s restricted stock unit (“RSU”) awards under the

2014

Omnibus Plan and the Prior Plans in the aggregate for the year ended

December

31,

2016:

				Weighted-Average
				Grant-Date
	Shares			Fair Value

Non-vested at December 31, 2015		415,909		$	18.10
Granted		337,175			19.85
Vested		(238,995	)		18.70
Forfeited		(25,310	)		18.71
Non-vested at December 31, 2016		488,779		$	18.99

Vested but unissued at December 31, 2016		283,910		$	19.27

As of

December

31,

2016,

there was

$6.5

million of total unrecognized compensation cost related to RSU awards granted under the

2014

Omnibus Plan and the Prior Plans. That cost is expected to be recognized over a weighted-average period of

3.1

years. The total fair value of awards vested for the years ended

December

31,

2016,

2015

and

2014

were

$4.9

million,

$4.9

million and

$4.4

million, respectively. The vested but unissued RSU awards consist of awards made to employees and directors who are eligible for retirement. According to the terms of these awards, which provide for vesting upon retirement, these employees and directors have no risk of forfeiture. These shares will be issued at the original contractual vesting and settlement dates. As of

December

31,

2016,

there is no remaining unrecognized compensation cost related to stock options granted.

The following table summarizes certain information regarding the stock option awards under the

2014

Omnibus Plan and the Prior Plans in the aggregate for the year ended

December

31,

2016:

				Weighted-		Weighted-Average		Aggregate
				Average		Remaining		Intrinsic
				Exercise		Contractual		Value
	Shares			Price		(years)		($000)*

Outstanding at December 31, 2015		109,130		$	16.14
Granted		-			-
Exercised		(103,530	)		16.49
Forfeited		-			-
Outstanding at December 31, 2016		5,600		$	9.61		2.0	$	111
Exercisable shares at December 31, 2016		5,600		$	9.61		2.0	$	111

* The intrinsic value of a stock option is the difference between the market value of the underlying stock and the exercise price of the option.

Cash proceeds, fair value received, tax benefits, and intrinsic value related to stock options exercised, and the weighted average grant date fair value for options granted, during the years ended

December

31,

2016,

2015

and

2014

are provided in the following table:

(In thousands)	2016		2015		2014
Proceeds from stock options exercised	$	328	$	145	$	565
Fair value of shares received upon exercise of stock options		1,380		447		1,962
Tax benefit related to stock options exercised		185		99		88
Intrinsic value of stock options exercised		841		330		488

Weighted average fair value on grant date		n/a		n/a		n/a

Phantom Stock Plan:

The Company maintains a non-qualified phantom stock plan as a supplement to its profit sharing plan for officers who have achieved the designated level and completed

one

year of service. However, certain officers who have not reached the designated level but were already participants remain eligible to participate in the Plan. Awards are made under this plan on certain compensation not eligible for contributions made under the profit sharing plan, due to the terms of the profit sharing plan and the Internal Revenue Code. Employees receive awards under this plan proportionate to the amount they would have received under the profit sharing plan, but for limits imposed by the profit sharing plan and the Internal Revenue Code. The awards are made as cash awards, and then converted to common stock equivalents (phantom shares) at the then current fair value of the Company’s common stock. Dividends are credited to each employee’s account in the form of additional phantom shares each time the Company pays a dividend on its common stock. In the event of a change of control (as defined in this plan), an employee’s interest is converted to a fixed dollar amount and deemed to be invested in the same manner as his interest in the Bank’s non-qualified deferred compensation plan. Employees vest under this plan

20%

per year for the

first

years of employment and are

100%

vested thereafter. Employees also become

100%

vested upon a change of control. Employees receive their vested interest in this plan in the form of a cash lump sum payment or installments, as elected by the employee, after termination of employment. The Company adjusts its liability under this plan to the fair value of the shares at the end of each period.

The following table summarizes the Company’s Phantom Stock Plan at or for the year ended

December

31,

2016:

Phantom Stock Plan	Shares			Fair Value

Outstanding at December 31, 2015		79,440		$	21.64
Granted		12,056			20.49
Forfeited		-			-
Distributions		(2,157	)		20.76
Outstanding at December 31, 2016		89,339		$	29.39
Vested at December 31, 2016		89,164		$	29.39

The Company recorded stock-based compensation expense for the phantom stock plan of

$0.7

million,

$0.2

million and

$17,000

for the years ended

December

31,

2016,

2015

and

2014,

respectively. The total fair value of distributions from the phantom stock plan were

$45,000,

$12,000

and

$35,000

for the years ended

December

31,

2016,

2015

and

2014,

respectively.