NOTE 18 – SHARE-BASED COMPENSATION

The Company has various types of share-based compensation plans. These plans are administered by the Compensation Committee of the Board of Directors, which selects persons eligible to receive awards and determines the number of shares and/or options subject to each award, the terms, conditions and other provisions of the awards.

Stock option plans

The Company issues stock options under various plans to directors, officers and other key employees. The option exercise price cannot be less than the fair value of the underlying common stock as of the date of the option grant and the maximum option term cannot exceed ten years. The stock options granted were issued with vesting periods ranging from one-and-a half to seven years. At December 31, 2011, future option or restricted stock awards of 1,074,553 shares could be made under approved incentive compensation plans.

The stock option plans also permit the granting of Stock Appreciation Rights ("SARs"). SARs entitle the holder to receive, in the form of cash or stock, the increase in the fair value of Company stock from the date of grant to the date of exercise. No SARs have been issued under the plans.

The following table represents the compensation expense that is included in salaries and employee benefits expense and related income tax benefits in the accompanying unaudited consolidated statements of income related to stock options for the years indicated below.


(dollars in thousands)
	2011		2010		2009
Compensation expense related to stock options	$	1,343	$	1,301	$	721
Income tax benefit related to stock options		470		455		252
Impact on basic earnings per share		0.03		0.03		0.04
Impact on diluted earnings per share		0.03		0.03		0.04

The Company reported $1,454,000, $637,000 and $1,346,000 of excess tax benefits as financing cash inflows during the years ended December 31, 2011, 2010, and 2009, respectively, related to the exercise and vesting of share-based compensation grants. Net cash proceeds from the exercise of stock options were $6,807,000, $1,631,000 and $4,449,000 for the years ended December 31, 2011, 2010, and 2009.

The Company uses the Black-Scholes option pricing model to estimate the fair value of share-based awards with the following weighted-average assumptions for the years ended December 31:


	2011			2010			2009
Expected dividends		2.2	%		2.3	%		2.1	%
Expected volatility		30.5	%		31.4	%		24.2	%
Risk-free interest rate		3.4	%		3.7	%		4.5	%
Expected term (in years)		5.7			6.0			7.0
Weighted-average grant-date fair value	$	16.43		$	16.55		$	15.45

The assumptions above are based on multiple factors, including historical stock option exercise patterns and post-vesting employment termination behaviors, expected future exercise patterns and the expected volatility of the Company's stock price.

At December 31, 2011, there was $4,114,000 of unrecognized compensation cost related to stock options which is expected to be recognized over a weighted-average period of 3.1 years.

The following table represents the activity related to stock options during the periods indicated.


	Number of shares			Weighted average exercise price		Weighted average remaining contract life
Outstanding options, December 31, 2008		1,357,741		$	39.35
Granted		98,600			53.22
Exercised		(192,682	)		21.84
Forfeited or expired		(3,785	)		58.36

Outstanding options, December 31, 2009		1,259,874		$	43.05
Granted		120,866			59.67
Exercised		(69,057	)		23.62
Forfeited or expired		(10,144	)		56.57

Outstanding options, December 31, 2010		1,301,539		$	45.52
Granted		97,096			62.59
Exercised		(264,647	)		30.99
Forfeited or expired		(36,368	)		57.51

Outstanding options, December 31, 2011		1,097,620		$	50.14		4.3 Years

Outstanding exercisable at December 31, 2009		946,463		$	38.89
Outstanding exercisable at December 31, 2010		938,532		$	41.12
Outstanding exercisable at December 31, 2011		789,952		$	47.64		3.2 Years

The following table presents the weighted average remaining life as of December 31, 2011 for options outstanding within the stated exercise prices:


	Options Outstanding						Options Exercisable
Exercise Price Range Per Share	Number of Options		Weighted Average Exercise Price		Weighted Average Remaining Life		Number of Options		Weighted Average Exercise Price
$22.88 to $29.90		21,745	$	24.87		0.1 years		21,745	$	24.87
$29.91 to $39.85		144,007		32.05		1.2 years		144,007		32.05
$39.86 to $49.79		388,459		46.47		3.1 years		366,059		46.49
$49.80 to $51.11		10,500		50.51		5.6 years		6,143		50.65
$51.12 to $54.91		101,128		54.29		6.5 years		52,065		54.22
$54.92 to $111.71		431,781		59.76		6.2 years		199,933		61.66

Total options		1,097,620	$	50.14		4.3 years		789,952	$	47.64

At December 31, 2011, the aggregate intrinsic value of shares underlying outstanding stock options and underlying exercisable stock options was $4,128,000 and $4,058,000. Total intrinsic value of options exercised was $6,783,000, $2,314,000, and $4,422,000 for the years ended December 31, 2011, 2010, and 2009, respectively.

Restricted stock plans

The Company issues restricted stock under various plans for certain officers and directors. A supplemental stock benefit plan adopted in 1999 and the 2001, 2005, 2008, and 2010 Incentive Plans allow grants of restricted stock. The plans allow for the issuance of restricted stock awards that may not be sold or otherwise transferred until certain restrictions have lapsed. The holders of the restricted stock receive dividends and have the right to vote the shares. The fair value of the restricted stock shares awarded under these plans is recorded as unearned share-based compensation, a contra-equity account. The unearned compensation related to these awards is amortized to compensation expense over the vesting period (generally three to seven years). The total share-based compensation expense for these awards is determined based on the market price of the Company's common stock at the date of grant applied to the total number of shares granted and is amortized over the vesting period. As of December 31, 2011, unearned share-based compensation associated with these awards totaled $22,344,000.

The following table represents the compensation expense that was included in salaries and employee benefits expense in the accompanying unaudited consolidated statements of income related to restricted stock grants for the years ended December 31:


(dollars in thousands)
	2011		2010		2009
Compensation expense related to restricted stock	$	6,784	$	6,187	$	4,925

The following table represents unvested restricted stock award activity for the years ended December 31:


	For the Year Ended December 31,
	2011			2010			2009
Balance, beginning of year		539,195			550,518			414,788
Granted		139,509			122,123			235,557
Forfeited		(35,823	)		(8,933	)		(5,367	)
Earned and issued		(130,769	)		(124,513	)		(94,460	)

Balance, end of year		512,112			539,195			550,518

The weighted average grant date fair value of the restricted stock granted during the years ended December 31, 2011, 2010, and 2009 was $55.61, $59.34, and $45.84, respectively.

Phantom stock awards

As part of the 2008 Incentive Compensation Plan and 2009 Phantom Stock Plan, the Company issues phantom stock awards to certain key officers and employees. The award is subject to a vesting period of five to seven years and is paid out in cash upon vesting. The amount paid per vesting period is calculated as the number of vested "share equivalents" multiplied by the closing market price of a share of the Company's common stock on the vesting date. Share equivalents are calculated on the date of grant as the total award's dollar value divided by the closing market price of a share of the Company's common stock on the grant date. Award recipients are also entitled to a "dividend equivalent" on each unvested share equivalent held by the award recipient. A dividend equivalent is a dollar amount equal to the cash dividends that the participant would have been entitled to receive if the participant's share equivalents were issued in shares of common stock. Dividend equivalents will be deemed to be reinvested as share equivalents that will vest and be paid out on the same date as the underlying share equivalents on which the dividend equivalents were paid. The number of share equivalents acquired with a dividend equivalent shall be determined by dividing the aggregate of dividend equivalents paid on the unvested share equivalents by the closing price of a share of the Company's common stock on the dividend payment date.

The following table represents share and dividend equivalent share award activity during the periods indicated.


	Number of share equivalents			Dividend equivalents			Total share equivalents			Value of share equivalents⁽¹⁾
Balance, December 31, 2008		34,497			403			35,350		$	1,696,800
Granted		32,414			1,483			33,897			1,824,000
Forfeited share equivalents		—			—			—			—
Vested share equivalents		—			—			—			—


Balance, December 31, 2009		67,361			1,886			69,247			3,726,000

Granted		58,124			2,847			60,971			3,605,000
Forfeited share equivalents		(1,250	)		(9	)		(1,259	)		74,000
Vested share equivalents		(5,041	)		(983	)		(6,024	)		356,000


Balance, December 31, 2010		119,194			3,741			122,935		$	7,269,000

Granted		131,099			6,152			137,251			6,766,000
Forfeited share equivalents		(5,917	)		(179	)		(6,096	)		301,000
Vested share equivalents		(11,455	)		(772	)		(12,227	)		622,000


Balance, December 31, 2011		232,921			8,942			241,863		$	11,924,000

(1)

Except for vested share payments, which are based on the cash paid at the time of vesting, the value of share equivalents is calculated based on the market price of the Company's stock at the end of the respective periods. The market price of the Company's stock was $49.30, $59.13, and $53.81 on December 31, 2011, 2010, and 2009, respectively.

During the years ended December 31, 2011, 2010, and 2009, the Company recorded $1,368,000, $381,000 and $322,000, respectively, in compensation expense based on the number of share equivalents vested at the end of the period and the current market price of $49.30, $59.13, and $53.81 per share of common stock. There were no awards vested during the year ended December 31, 2009 according to the vesting provisions of the plan and thus no cash payments were made to award recipients.

401(k) profit sharing plan

The Company has a 401(k) Profit Sharing Plan covering substantially all of its employees. Annual employer contributions to the plan are set by the Board of Directors. The Company made contributions of $1,177,000, $739,000, and $723,000 for the years ended December 31, 2011, 2010, and 2009, respectively. The Plan provides, among other things, that participants in the Plan be able to direct the investment of their account balances within the Profit Sharing Plan into alternative investment funds. Participant deferrals under the salary reduction election may be matched by the employer based on a percentage to be determined annually by the employer.