STOCK-BASED COMPENSATION

Stock-based compensation is accounted for in accordance with FASB ASC 718, Stock Compensation. Compensation expense relating to all share-based payments is recognized on a straight-line basis over the applicable vesting period. Our Stock Incentive Plans provide for the granting of stock options, stock appreciation rights, performance awards, restricted stock and restricted stock unit awards, deferred stock units, and other awards that are payable in or valued by reference to our common shares. The number of shares reserved for issuance under our 2013 Incentive Plan (2013 Plan) is 2,096,535. At March 31, 2017, there were 490,926 shares available for future grants under the 2013 Plan.

We record stock-based compensation expense related to awards granted to Associates in Salaries, benefits and other compensation; expense related to awards granted to directors is recorded in Other operating expense in our Consolidated Statements of Income. Total stock-based compensation expense recognized during the three months ended March 31, 2017 and 2016 was $0.9 million ($0.6 million after tax) and $0.8 million ($0.4 million after tax), respectively.

Stock Options

Stock options are granted with an exercise price not less than the fair market value of our common stock on the date of the grant. All stock options are to be granted at not less than the fair market value of our common stock on the date of the grant. All stock options granted during 2017 and 2016 vest in 25% per annum increments, start to become exercisable one year from the grant date and expire seven years from the grant date. Generally, all awards become exercisable immediately in the event of a change in control, as defined within the Stock Incentive Plans. We issue new shares upon the exercise of options.

We determine the grant date fair value of stock options using the Black-Scholes option-pricing model. The model requires the use of numerous assumptions, many of which are subjective. The expected term was derived from historical exercise patterns and represents the amount of time that stock options granted are expected to be outstanding. Other significant assumptions to determine 2017 and 2016 grant date fair value included volatility measured using the fluctuation in month end closing stock prices over a period which corresponds with the average expected option life; a weighted-average risk-free rate of return (zero coupon treasury yield); and a dividend yield indicative of our current dividend rate

The following table summarizes the assumptions we used to value options issued during the three months ended March 31, 2017 and 2016:



	March 31, 2017		March 31, 2016
Expected Term (in years)	5.3		5.3
Volatility	24.85	%	29.60	%
Weighted-average risk free interest rate	1.95	%	1.24	%
Dividend Yield	0.6	%	0.8	%

The following table summarizes our stock option activity for the three months ended March 31, 2017.



	Three months ended March 31, 2017
	Shares			Weighted- Average Exercise Price
Stock Options:
Outstanding at beginning of period	1,547,980			17.83
Granted	45,134			47.05
Exercised	(117,612		)	15.47
Forfeited	(750		)	15.83
Outstanding at end of period	1,474,752			18.91
Nonvested at end of period	424,459			23.64
Exercisable at end of period	1,050,293			17.00
Weighted-average fair value of options granted	$	11.50

The following table provides information about our nonvested stock options outstanding at March 31, 2017:



	March 31, 2017
	Shares			Weighted- Average Exercise Price
Stock Options:
Nonvested at beginning of period	$	704,421		$	19.08
Granted	45,134			47.05
Forfeited	(750		)	15.83
Vested during period	(324,346		)	17.01
Nonvested at end of period	$	424,459		23.64

The total amount of unrecognized compensation cost related to nonvested stock options as of March 31, 2017 was $5.5 million. The weighted-average period over which the expense is expected to be recognized is 1.86 years. During the first quarter of 2017, we recognized $0.5 million of compensation expense related to these awards.

Restricted Stock Units

Restricted stock units (RSUs) are granted at no cost to the recipient and generally vest over a four year period. All outstanding awards granted to senior executives vest over no less than a four year period. The 2013 Plan allows for awards with vesting periods less than four years subject to Board approval. The fair value of RSUs is equal to the fair value of the Company’s common stock on the date of grant. We recognize the expense related to RSUs granted to Associates in Salaries, benefits and other compensation expense; expense related to awards granted to directors is recorded in Other operating expense in our Statements of Income on an accrual basis over the requisite service period for the entire award.

The Long-Term Performance-Based Restricted Stock Unit program (Long-Term Program) provided for awards up to an aggregate of 233,400 RSUs to participants, only after the achievement of targeted levels of return on assets (ROA) in any year through 2013. During 2013, the Company achieved the 1.00% ROA performance level. In accordance with the Long-Term Program, the Company issued 108,456 RSUs to the plan’s participants in 2014. The RSUs vest in 25% increments over four years and we recognize expense over the implicit service period associated with the performance condition. During the first quarter of 2017, we recognized $0.1 of compensation expense related to this program.

The following table summarizes the Company’s RSAs and RSUs, including performance awards, and changes during the three months ended March 31, 2017:



	Three months ended March 31, 2017
	Units (in whole)			Weighted Average Grant-Date Fair Value per Unit
Outstanding at beginning of period	$	135,592		$	27.14
Granted	36,523			47.05
Vested	(33,803		)	20.22
Forfeited	(1,823		)	27.21
Outstanding at end of period	$	136,489		34.20

The total amount of compensation cost to be recognized relating to non-vested restricted stock, including performance awards, as of March 31, 2016, was $7.0 million. The weighted-average period over which the expense is expected to be recognized is 3.2 years. During the three months ended March 31, 2017, we recognized $0.2 million of compensation cost related to these awards.