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 and phantom stock. 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 March 31, 2019, awards of 675,556 shares could be made under approved incentive compensation plans. The Company issues shares to fulfill stock option exercises and restricted share units and restricted stock awards vesting from available authorized common shares. At March 31, 2019, the Company believes there are adequate authorized shares to satisfy anticipated stock option exercises and restricted share unit and restricted stock award vesting.

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, 2017	686,366		$	58.24
Granted	92,162		82.20
Exercised	(21,212	)	52.10
Forfeited or expired	(14,513	)	65.27
Outstanding options, March 31, 2018	742,803		$	61.25
Exercisable options, March 31, 2018	519,496		$	56.53

Outstanding options, December 31, 2018	714,420		$	61.41
Granted	126,405		70.32
Exercised	(19,620	)	54.44
Forfeited or expired	(5,564	)	69.58
Outstanding options, March 31, 2019	815,641		$	62.90
Exercisable options, March 31, 2019	563,084		$	58.22

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 Three Months Ended March 31,
	2019			2018
Expected dividends	2.3		%	1.8		%
Expected volatility	24.5		%	24.3		%
Risk-free interest rate	2.5		%	2.7		%
Expected term (in years)	5.7			5.7
Weighted-average grant-date fair value	$	14.44		$	18.36

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 and related income tax benefits in the accompanying consolidated statements of comprehensive income related to stock options for the following periods:



	For the Three Months Ended March 31,
(in thousands)	2019		2018
Compensation expense related to stock options	$	349	$	312
Income tax benefit related to stock options	26		23

At March 31, 2019, there was $3.0 million of unrecognized compensation expense related to stock options that is expected to be recognized over a weighted-average period of 3.1 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 (generally three to five years). As of March 31, 2019 and 2018, unrecognized share-based compensation expense associated with these awards totaled $31.1 million and $39.0 million, respectively. The unrecognized compensation expense related to restricted stock awards at March 31, 2019 is expected to be recognized over a weighted-average period of 1.5 years.

Restricted share units

The Company issues 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 agreements. 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. See Note 1, Summary of Significant Accounting Policies, in the 2018 Annual Report on Form 10-K for the year ended December 31, 2018, for further discussion of restricted share units with market or performance conditions.

The following table represents the compensation expense that was included in non-interest expense and related income tax benefits 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 March 31,
(in thousands)	2019		2018
Compensation expense related to restricted stock awards and restricted share units	$	5,223	$	4,422
Income tax benefit related to restricted stock awards and restricted share units	1,097		929

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



	For the Three Months Ended March 31,
	2019		2018
Number of shares at beginning of period	700,628		738,187
Granted	190,726		199,958
Forfeited	(8,337	)	(43,405	)
Vested	(182,947	)	(115,877	)
Number of shares at end of period	700,070		778,863

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 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.

The following table represents compensation expense recorded for phantom stock based on the number of share equivalents vested at March 31 of the periods indicated and the current market price of the Company’s stock at that time:



	For the Three Months Ended March 31,
(in thousands)	2019		2018
Compensation expense related to phantom stock	$	3,194	$	2,996

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



(in thousands)	Number of share equivalents ⁽¹⁾		Value of share equivalents ⁽²⁾
Balance, December 31, 2017	393,844		$	30,523
Granted	129,234		10,080
Forfeited share equivalents	(24,460	)	1,908
Vested share equivalents	(121,758	)	10,187
Balance, March 31, 2018	376,860		$	29,395

Balance, December 31, 2018	353,407		$	22,717
Granted	161,273		11,565
Forfeited share equivalents	(13,680	)	981
Vested share equivalents	(96,995	)	7,316
Balance, March 31, 2019	404,005		$	28,971


⁽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 $71.71 and $78.00 on March 31, 2019, and 2018, respectively.