Stock-Based Incentive Plan

The Corporation has a shareholder approved 2013 Long-Term Incentive Plan which replaced the expired 2003 Long-Term Incentive Plan. Under the 2013 Long-Term Incentive Plan, the Corporation may grant options and share awards to employees and non-employee directors up to 2,473,483 shares of common stock, which includes 473,483 shares as a result of the completion of the acquisition of Valley Green Bank on January 1, 2015. The number of shares of common stock available for issuance under the plan is subject to adjustment, as described in the plan. This includes, in the event of any merger, reorganization, consolidation, recapitalization, stock dividend, or other change in corporate structure affecting the stock, substitution or adjustment shall be made in the aggregate number of shares reserved for issuance under the plan, in the number and option price of shares subject to outstanding options granted under the plan and in the number and price of shares subject to other awards, as described in the plan. The plan provides for the issuance of options to purchase common shares at prices not less than 100 percent of the fair market value on the date of option grant and have a contractual term of ten years; and for restricted stock awards valued at not less than 100 percent of the fair market value at the date of award grant. For the majority of options issued, after two years, 33.3 percent of the optioned shares become exercisable in each of the following three years and remain exercisable for a period not exceeding ten years from the date of grant. For the majority of the restricted stock awards, the shares vest based upon the Corporation’s performance against selected peers with respect to certain financial measures over a three-year period. There were 2,136,273 share awards available for future grants at December 31, 2015 under the plan. At December 31, 2015, there were 668,667 options to purchase common stock and 183,584 unvested restricted stock awards outstanding under the plan.

The following table is a summary of the status of options under the Corporation’s long-term incentive plans:



(Dollars in thousands, except per share data)	Shares Under Option		Weighted Average Exercise Price Per Share		Weighted Average Remaining Contractual Life (Years)	Aggregate Intrinsic Value at December 31, 2015
Outstanding at December 31, 2014	673,216		$	19.46
Granted	114,500		18.52
Expired	(80,550	)	24.26
Forfeited	(10,500	)	17.83
Exercised	(27,999	)	16.44
Outstanding at December 31, 2015	668,667		18.88		5.4	$	1,546
Exercisable at December 31, 2015	369,502		19.64		3.3	671

The total intrinsic value of options exercised during 2015, 2014, and 2013 was $103 thousand, $47 thousand, and $0 respectively. The Corporation has a stock-for-stock-option exchange (or cashless exercise) program in place, whereby optionees can exchange the value of the spread of in-the-money vested options for Corporation stock having an equivalent value. This broker-assisted exchange allows the optionees to exercise their vested options on a net basis without having to pay the exercise price or related expenses in cash. However, it will result in the optionees acquiring fewer shares than the number of options exercised.

The Corporation's estimate of the fair value of a stock option is based on expectations derived from historical experience and may not necessarily equate to its market value when fully vested. The life of the option is based on historical factors which include the contractual term, vesting period, exercise behavior and employee turnover. The risk-free rate for periods within the expected term of the option is based on the U.S. Treasury strip rate in effect at the time of grant. Expected volatility is based on the historical volatility of the Corporation’s stock over the expected life of the grant. The Corporation uses a straight-line accrual method to recognize stock-based compensation expense over the time-period it expects the options to vest.

The Corporation recognizes compensation expense for stock options over the requisite service period based on the grant-date fair value of those awards expected to ultimately vest. Forfeitures are estimated on the date of grant and revised if actual or expected forfeiture activity differs materially from original estimates. The following aggregated assumptions were used to estimate the fair value of options granted for the periods indicated:



	For the Years Ended December 31,
	2015			2014			2013
Expected option life in years	8.0			8.2			8.9
Risk free interest rate	1.64		%	2.51		%	1.99		%
Expected dividend yield	4.32		%	4.26		%	4.74		%
Expected volatility	49.38		%	50.16		%	49.30		%
Fair value of options	$	6.07		$	6.53		$	5.32

Following is a summary of nonvested restricted stock awards at December 31, 2015 including changes during the year:



(Dollars in thousands, except per share data)	Nonvested Share Awards		Weighted Average Grant Date Fair Value
Nonvested share awards at December 31, 2014	176,978		$	17.02
Granted	65,755		18.62
Vested	(39,215	)	15.68
Forfeited	(19,934	)	15.97
Nonvested share awards at December 31, 2015	183,584		18.00

The fair value of restricted stock is equivalent to the fair value on the date of grant and is amortized over the vesting period. Certain information regarding restricted stock is summarized below for the periods indicated:



(Dollars in thousands, except per share data)	For the Years Ended December 31,
	2015		2014		2013
Shares granted	65,755		74,304		70,041
Weighted average grant date fair value	$	18.62	$	18.63	$	16.76
Intrinsic value of awards vested	$	749	$	735	$	505

At December 31, 2015, there was $1.5 million in total unrecognized compensation expense related to nonvested share-based compensation arrangements, which is expected to be recognized over a weighted average period of 2.1 years.

The following table presents information related to the Corporation’s compensation expense related to stock incentive plans recognized for the periods indicated:



	For the Years Ended December 31,
(Dollars in thousands)	2015		2014		2013
Stock-based compensation expense:
Stock options	$	528	$	463	$	517
Restricted stock awards	893		679		461
Employee stock purchase plan	53		46		38
Total	$	1,474	$	1,188	$	1,016
Tax benefit on nonqualified stock option expense, restricted stock awards and disqualifying dispositions of incentive stock options	$	339	$	244	$	162

There were no modifications or accelerations to options or restricted stock awards during the period 2013 through 2015.

The Corporation typically issues shares for stock option exercises and grants of restricted stock awards from its treasury stock.