Stock-Based Compensation

A. General Information

The Corporation permits the issuance of stock options, dividend equivalents, performance stock awards, stock appreciation rights and restricted stock units or awards to employees and directors of the Corporation under several plans. The performance awards and restricted awards may be in the form of stock awards or stock units. Stock awards and stock units differ in that for a stock award, shares of restricted stock are issued in the name of the grantee, whereas a stock unit constitutes a promise to issue shares of stock upon vesting. The accounting for awards and units is identical. The terms and conditions of awards under the plans are determined by the Corporation’s Management Development and Compensation Committee.

Prior to April 25, 2007, all shares authorized for grant as stock-based compensation were limited to grants of stock options. On April 25, 2007, the shareholders approved the Corporation’s “2007 Long-Term Incentive Plan” (the “2007 LTIP”) under which a total of 428,996 shares of the Corporation’s common stock were made available for award grants. On April 28, 2010, the shareholders approved the Corporation’s “2010 Long Term Incentive Plan” under which a total of 445,002 shares of the Corporation’s common stock were made available for award grants and on April 30, 2015, the shareholders approved an amendment and restatement of such plan (as amended and restated, the “2010 LTIP”) to, among other things, increase the number of shares available for award grants by 500,000 to 945,002.

In addition to the shareholder-approved plans mentioned in the preceding paragraph, the Corporation periodically authorizes grants of stock-based compensation as inducement awards to new employees. This type of award does not require shareholder approval in accordance with Rule 5635(c)(4) of the NASDAQ listing rules.

The equity awards are authorized to be in the form of, among others, options to purchase the Corporation’s common stock, RSUs and PSUs.

RSUs have a restriction based on the passage of time. The grant date fair value of the RSUs is based on the closing price on the date of the grant.

PSUs have restrictions based on performance criteria and the passage of time. The performance criteria may be a market-based criteria measured by the Corporation’s total shareholder return (“TSR”) relative to the performance of the community bank index for the respective period. The fair value of the PSUs based on the Corporation’s TSR relative to the performance of a designated peer group or the NASDAQ Community Bank Index is calculated using the Monte Carlo Simulation method. The performance criteria may also be based on a non-market-based criteria such as return on average equity relative to that designated peer group. The grant date fair value of these PSUs is based on the closing price of the Corporation’s stock on the date of the grant. PSU grants may have a vesting percent ranging from 0% to 150%.

B. Other Stock Option Information

The following table provides information about options outstanding for the three months ended September 30, 2018:



	Shares		Weighted Average Exercise Price		Weighted Average Grant Date Fair Value
Options outstanding, June 30, 2018	66,571		$	19.26	$	4.71
Forfeited	—		—		—
Expired	—		—		—
Exercised	(15,150	)	$	23.02	$	5.09
Options outstanding, September 30, 2018	51,421		$	18.15	$	4.60

The following table provides information about options outstanding for the nine months ended September 30, 2018:



	Shares		Weighted Average Exercise Price		Weighted Average Grant Date Fair Value
Options outstanding, December 31, 2017	115,246		$	20.73	$	4.86
Forfeited	—		—		—
Expired	—		—		—
Exercised	(63,825	)	$	22.81	$	5.06
Options outstanding, September 30, 2018	51,421		$	18.15	$	4.60

As of September 30, 2018 there were no unvested options.

Proceeds, related tax benefits realized from options exercised and intrinsic value of options exercised were as follows:



	Three Months Ended September 30,				Nine Months Ended September 30,
(dollars in thousands)	2018		2017		2018		2017
Proceeds from exercise of stock options	$	349	$	283	$	1,456	$	1,288
Related tax benefit recognized	81		96		312		402
Net proceeds of options exercised	$	430	$	379	$	1,768	$	1,690

Intrinsic value of options exercised	$	386	$	273	$	1,484	$	1,147

The following table provides information about options outstanding and exercisable at September 30, 2018:



(dollars in thousands, except share data and exercise price)	Outstanding		Exercisable
Number of shares	51,421		51,421
Weighted average exercise price	$	18.15	$	18.15
Aggregate intrinsic value	$	1,478	$	1,478
Weighted average remaining contractual term in years	0.9		0.9

C. Restricted Stock Units and Performance Stock Units

The Corporation has granted RSUs and PSUs under the 2007 LTIP and 2010 LTIP and in accordance with Rule 5635(c)(4) of the NASDAQ listing standards.

RSUs

The compensation expense for the RSUs is measured based on the market price of the stock on the day prior to the grant date and is recognized on a straight-line basis over the vesting period.

For the three and nine months ended September 30, 2018, the Corporation recognized $318 thousand and $873 thousand, respectively, of expense related to the Corporation’s RSUs. As of September 30, 2018, there was $2.3 million of unrecognized compensation cost related to RSUs. This cost will be recognized over a weighted average period of 2.3 years.

The following table details the RSUs for the three and nine months ended September 30, 2018:



	Three Months Ended September 30, 2018				Nine Months Ended September 30, 2018
	Number of Shares		Weighted Average Grant Date Fair Value		Number of Shares		Weighted Average Grant Date Fair Value
Beginning balance	68,595		$	36.89	75,707		$	35.80
Granted	23,843		$	46.29	26,243		$	46.07
Vested	(16,122	)	$	33.65	(24,469	)	$	32.16
Forfeited	—		$	—	(1,165	)	$	35.36
Ending balance	76,316		$	40.51	76,316		$	40.51

PSUs

For the three and nine months ended September 30, 2018, the Corporation recognized $390 thousand and $1.1 million, respectively, of expense related to the PSUs. As of September 30, 2018, there was $3.3 million of unrecognized compensation cost related to PSUs. This cost will be recognized over a weighted average period of 2.2 years.

The following table details the PSUs for the three and nine months ended September 30, 2018:



	Three Months Ended September 30, 2018				Nine Months Ended September 30, 2018
	Number of Shares		Weighted Average Grant Date Fair Value		Number of Shares		Weighted Average Grant Date Fair Value
Beginning balance	130,260		$	26.73	168,453		$	24.76
Granted	40,722		$	44.56	40,722		$	44.56
Vested	(48,056	)	$	16.04	(81,840	)	$	16.40
Forfeited	—		$	—	(4,409	)	$	26.57
Ending balance	122,926		$	36.82	122,926		$	36.82