NOTE 12 – 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 June 30, 2012, future option or restricted stock awards of 702,973 shares could be made under approved incentive compensation 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 consolidated statements of comprehensive income related to stock options for the three and six months ended June 30, 2012 and 2011.


(Dollars in thousands, except per share data)	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2012		2011		2012		2011
Compensation expense related to stock options	$	542	$	212	$	983	$	572
Income tax benefit related to stock options		190		74		344		200
Impact on basic earnings per share		0.01		0.01		0.02		0.01
Impact on diluted earnings per share		0.01		0.01		0.02		0.01

The Company reported $285,000, and $1,378,000 of excess tax benefits as financing cash inflows during the six months ended June 30, 2012 and 2011, respectively, related to the exercise and vesting of share-based compensation grants. Net cash proceeds from the exercise of stock options were $1,337,000, and $5,739,000 for the six months ended June 30, 2012 and 2011, respectively.

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 six-month periods ended June 30:


	2012						2011
	Total Options Outstanding			Options Granted During the Period			Total Options Outstanding			Options Granted During the Period
Expected dividends		2.3	%		2.6	%		2.2	%		2.4	%
Expected volatility		33.6	%		41.0	%		31.7	%		35.4	%
Risk-free interest rate		3.0	%		0.9	%		3.6	%		1.5	%
Expected term (in years)		5.8			5.0			6.4			5.0
Weighted-average grant-date fair value	$	13.57		$	14.74			16.41		$	12.84

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 June 30, 2012, there was $6,135,000 of unrecognized compensation cost related to stock options which is expected to be recognized over a weighted-average period of 5.0 years.

The following table represents the activity related to stock options during the six months ended June 30, 2012 and 2011.


	Number of shares			Weighted average exercise price		Weighted average remaining contract life
Outstanding options, December 31, 2010		1,301,539		$	45.52
Granted		94,196			63.09
Exercised		(188,192	)		32.44
Forfeited or expired		(21,867	)		57.29

Outstanding options, June 30, 2011		1,185,676		$	48.78	4.5 Years
Outstanding exercisable at June 30, 2011		856,944		$	45.83	3.2 Years

Outstanding options, December 31, 2011		1,097,620		$	50.14
Granted		217,230			51.78
Exercised		(44,278	)		29.28
Forfeited or expired		(26,164	)		58.17

Outstanding options, June 30, 2012		1,244,408		$	51.00	5.0 Years

Outstanding exercisable at June 30, 2012		788,594		$	49.19	3.2 Years

At June 30, 2012, the aggregate intrinsic value of shares underlying outstanding stock options and underlying exercisable stock options was $3,809,000 and $3,730,000. Total intrinsic value of options exercised was $1,005,000 and $5,000,000 for the six months ended June 30, 2012 and 2011, 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 June 30, 2012, unearned share-based compensation associated with these awards totaled $26,299,000.

The following table represents the compensation expense that was included in salaries and employee benefits expense in the accompanying consolidated statements of comprehensive income related to restricted stock grants for the three and six months ended June 30:


(Dollars in thousands)	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2012		2011		2012		2011
Compensation expense related to restricted stock	$	1,956	$	1,685	$	3,665	$	3,363

The following table represents unvested restricted stock award activity for the six months ended June 30, 2012 and 2011. The weighted average grant date fair value of the restricted stock granted during the six months ended June 30, 2012 and 2011 was $51.38 and $56.17, respectively.


	For the Six Months Ended June 30,
	2012			2011
Balance, beginning of period		512,112			539,195
Granted		162,570			120,675
Forfeited		(4,306	)		(27,561	)
Earned and issued		(107,418	)		(101,891	)

Balance, end of period		562,958			530,418

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 is 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 phantom stock award activity during the periods indicated. During the six months ended June 30, 2012 and 2011, the Company recorded $1,181,000 and $833,000, respectively, in compensation expense based on the number of share equivalents vested at the end of the period and the current market price of the Company’s common stock.


	Number of share equivalents			Dividend equivalents			Total share equivalents			Value of share equivalents⁽¹⁾
Balance, December 31, 2010		119,194			3,741			122,935		$	7,269,000
Granted		121,824			2,746			124,570			7,180,000
Forfeited share equivalents		(153	)		(1	)		(154	)		(9,000	)
Vested share equivalents		(3,341	)		(217	)		(3,558	)		(206,000	)

Balance, June 30, 2011		237,524			6,269			243,793		$	14,052,000

Balance, December 31, 2011		232,921			8,942			241,863		$	11,924,000
Granted		106,351			4,347			110,698			5,585,000
Forfeited share equivalents		(4,443	)		(156	)		(4,599	)		(232,000	)
Vested share equivalents		(12,785	)		(805	)		(13,590	)		(691,000	)

Balance, June 30, 2012		322,044			12,328			334,372		$	16,869,000

(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 $50.45 and $57.64 on June 30, 2012 and 2011, respectively.