SHARE-BASED COMPENSATION

The Company has various types of share-based compensation plans that permit the granting of awards in the form of stock options, restricted stock, restricted share units, phantom stock and performance units. These plans are administered by the Compensation Committee of the Board of Directors, which selects persons eligible to receive awards and determines the terms, conditions and other provisions of the awards. At September 30, 2016, awards of 2,468,506 shares could be made under approved incentive compensation plans.

Stock option awards

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



	Number of shares		Weighted Average Exercise Price
Outstanding options, December 31, 2015	813,777		$	56.99
Granted	152,209		47.63
Exercised	(72,258	)	55.28
Forfeited or expired	(49,636	)	60.06
Outstanding options, September 30, 2016	844,092		$	55.27
Exercisable options, September 30, 2016	538,751		$	56.40

Outstanding options, December 31, 2014	867,682		$	55.92
Granted	81,313		62.53
Exercised	(95,265	)	50.64
Forfeited or expired	(15,733	)	66.57
Outstanding options, September 30, 2015	837,997		$	56.96
Exercisable options, September 30, 2015	570,148		$	56.53

The Company uses the Black-Scholes option pricing model to estimate the fair value of stock option awards. The following weighted-average assumptions were used for option awards issued during the following periods:



	For the Nine Months Ended September 30
	2016			2015
Expected dividends	2.9		%	2.2		%
Expected volatility	29.1		%	35.6		%
Risk-free interest rate	1.4		%	2.0		%
Expected term (in years)	6.5			7.5
Weighted-average grant-date fair value	$	10.16		$	19.60

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.

The following table represents the compensation expense that is included in non-interest expense in the accompanying consolidated statements of comprehensive income related to stock options for the following periods:



	For the Three Months Ended September 30				For the Nine Months Ended September 30
(Dollars in thousands)	2016		2015		2016		2015
Compensation expense related to stock options	$	513	$	455	$	1,500	$	1,400

At September 30, 2016, there was $2.5 million of unrecognized compensation cost related to stock options that is expected to be recognized over a weighted-average period of 2.4 years.

Restricted stock awards

The Company issues restricted stock under various plans for certain officers and directors. The restricted stock awards 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 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 recognized over the vesting period. As of September 30, 2016 and 2015, unrecognized share-based compensation associated with these awards totaled $18.3 million and $22.2 million, respectively.

Restricted share units

During the first nine months of 2016 and 2015, the Company issued restricted share units to certain of its executive officers. Restricted share units vest after the end of a three-year performance period, based on satisfaction of the market and performance conditions set forth in the restricted share unit agreement. Recipients do not possess voting or investment power over the common stock underlying such units until vesting. The grant date fair value of these restricted share units is the same as the value of the corresponding number of shares of common stock, adjusted for assumptions surrounding the market-based conditions contained in the respective agreements.

The following table represents the compensation expense that was included in non-interest expense in the accompanying consolidated statements of comprehensive income related to restricted stock awards and restricted share units for the periods indicated:



	For the Three Months Ended September 30				For the Nine Months Ended September 30
(Dollars in thousands)	2016		2015		2016		2015
Compensation expense related to restricted stock awards and restricted share units	$	3,014	$	2,935	$	9,729	$	8,739

The following table represents unvested restricted stock award and restricted share unit activity for the following periods:



	For the Nine Months Ended September 30
	2016		2015
Balance at beginning of period	507,130		506,289
Granted	244,074		203,762
Forfeited	(16,890	)	(23,471	)
Earned and issued	(184,873	)	(170,513	)
Balance at end of period	549,441		516,067

Phantom stock awards

The Company issues phantom stock awards to certain key officers and employees. The awards are subject to a vesting period of five to seven years and are 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 are 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.

Performance units

During 2015, the Company issued performance units to certain of its executive officers. Performance units are tied to the value of shares of the Company’s common stock, are payable in cash, and vest in increments of one-third per year after attainment of one or more performance measures. The value of performance units is the same as the value of the corresponding number of shares of common stock.

The following table indicates compensation expense recorded for phantom stock and performance units based on the number of share equivalents vested at September 30 of the periods indicated and the current market price of the Company’s stock at that time:



	For the Three Months Ended September 30				For the Nine Months Ended September 30
(Dollars in thousands)	2016		2015		2016		2015
Compensation expense related to phantom stock and performance units	$	3,127	$	2,976	$	8,325	$	9,482

The following table represents phantom stock award and performance unit activity during the periods indicated:



(Dollars in thousands)	Number of share equivalents ⁽¹⁾		Value of share equivalents ⁽²⁾
Balance, December 31, 2015	462,430		$	25,466
Granted	200,761		13,475
Forfeited share equivalents	(27,267	)	1,830
Vested share equivalents	(158,491	)	8,161
Balance, September 30, 2016	477,433		$	32,045

Balance, December 31, 2014	475,347		$	30,826
Granted	162,740		9,473
Forfeited share equivalents	(28,728	)	1,672
Vested share equivalents	(138,678	)	8,832
Balance, September 30, 2015	470,681		$	27,398


⁽¹⁾	Number of share equivalents includes all reinvested dividend equivalents for the periods indicated.

⁽²⁾

Except for share equivalents at the beginning of each period, which are based on the value at that time, and 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 $67.12 and $58.21 on September 30, 2016, and 2015, respectively.