Share-Based Compensation

The Corporation maintains share-based compensation plans under which it periodically grants share-based awards for a fixed number of shares to certain officers of the Corporation. The fair value of share-based awards is recognized as compensation expense over the requisite service or performance period. During the three-month periods ended September 30, 2015 and 2014, share-based compensation expense related to stock options, restricted stock units and other share-based awards totaled $1.2 million and $0.7 million, respectively. During the nine-month periods ended September 30, 2015 and 2014, share-based compensation expense related to stock options, restricted stock units and other share-based awards totaled $2.7 million and $1.9 million, respectively.

During the nine-month period ended September 30, 2015, the Corporation granted options to purchase 244,165 shares of common stock, 85,070 restricted stock units and 10,851 shares of common stock to certain officers of the Corporation. On April 20, 2015, the shareholders of the Corporation approved the Stock Incentive Plan of 2015, which provides for 1,300,000 shares of the Corporation's common stock to be made available for future equity-based awards and canceled the amount of shares available for future grant under prior share-based compensation plans. At September 30, 2015, there were 1,275,052 shares of common stock available for future grants under the Stock Incentive Plan of 2015.

Stock Options

The Corporation issues stock options to certain officers. Stock options are issued at the current market price of the Corporation's common stock on the date of grant and expire ten years from the date of grant. Stock options granted after 2012 vest ratably over a five-year period. Stock options granted prior to 2013 generally vest ratably over a three-year period.

In conjunction with the acquisition of Lake Michigan, the Corporation assumed the Lake Michigan Financial Corporation Stock Incentive Plan of 2012 and the Lake Michigan Financial Corporation Stock Incentive Plan of 2003 (collectively referred to as the Lake Michigan Stock Option Plans). On the date of acquisition, all outstanding Lake Michigan stock options became immediately vested, if not already vested, and were converted into 132,883 stock options for the Corporation. The converted options continue to have and are subject to the same terms of the Lake Michigan Stock Option Plans. No additional share-based awards may be granted under the Lake Michigan Stock Option Plans.

A summary of activity for the Corporation’s stock options as of and for the nine months ended September 30, 2015 is presented below:



	Non-Vested Stock Options Outstanding						Stock Options Outstanding
	Number of Options		Weighted- Average Exercise Price Per Share		Weighted- Average Grant Date Fair Value Per Share		Number of Options		Weighted- Average Exercise Price Per Share
Outstanding at December 31, 2014	432,199		$	26.75	$	8.30	1,037,311		$	25.90
Granted	244,165		30.18		8.40		244,165		30.18
Lake Michigan converted options	—		—		—		132,883		12.93
Exercised	—		—		—		(233,333	)	23.68
Vested	(150,224	)	25.57		7.80		—		—
Forfeited/expired	(38,342	)	27.98		8.49		(38,942	)	28.05
Outstanding at September 30, 2015	487,798		$	28.73	$	8.49	1,142,084		$	25.68
Exercisable/vested at September 30, 2015							654,286		$	23.41

The weighted-average remaining contractual terms were 6.3 years for all outstanding stock options and 4.6 years for exercisable stock options at September 30, 2015. The intrinsic value of all outstanding in-the-money stock options and exercisable in-the-money stock options was $6.0 million and $4.2 million, respectively, at September 30, 2015. The aggregate intrinsic values of outstanding and exercisable options at September 30, 2015 were calculated based on the closing market price of the Corporation’s common stock on September 30, 2015 of $32.35 per share less the exercise price. Options with intrinsic values less than zero, or “out-of-the-money” options, were not included in the aggregate intrinsic value reported.

At September 30, 2015, unrecognized compensation expense related to stock options totaled $3.5 million and is expected to be recognized over a remaining weighted average period of 3.7 years.

The fair value of the stock options granted during the nine months ended September 30, 2015 was estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions.



Expected dividend yield	3.50		%
Risk-free interest rate	1.78		%
Expected stock price volatility	39.1		%
Expected life of options – in years	7.0
Weighted average fair value of options granted	$	8.40

Restricted Stock Units

In addition to stock options, the Corporation grants restricted stock performance units and restricted stock service-based units (collectively referred to as restricted stock units) to certain officers. The restricted stock performance units vest based on the Corporation achieving certain performance target levels and the grantee completing the requisite service period. The restricted stock performance units are eligible to vest from 0.25x to 1.5x the number of units originally granted depending on which, if any, of the performance target levels are met. However, if the minimum performance target levels are not achieved, no shares will become vested or be issued for that respective year’s restricted stock performance units. The restricted stock service-based units vest upon satisfaction of a service condition. Upon achievement of the performance target level and/or satisfaction of a service condition, if applicable, the restricted stock units are converted into shares of the Corporation’s common stock on a one-to-one basis. Compensation expense related to restricted stock units is recognized over the expected requisite performance or service period, as applicable.

A summary of the activity for restricted stock units as of and for the nine months ended September 30, 2015 is presented below:



	Number of Units		Weighted- Average Grant Date Fair Value Per Unit
Outstanding at December 31, 2014	204,319		$	24.14
Granted	85,070		28.48
Converted into shares of common stock	(69,410	)	22.44
Forfeited/expired	(11,809	)	25.61
Outstanding at September 30, 2015	208,170		$	26.40

At September 30, 2015, unrecognized compensation expense related to restricted stock unit awards totaled $3.3 million and is expected to be recognized over a remaining weighted average period of 2.6 years.