(

)

Stock-Based Compensation

The fair value of all stock-based awards granted, net of estimated forfeitures, is recognized as compensation expense over the respective service period.

At Bancorp's

2015

Annual Meeting of Shareholders, shareholders approved the

2015

Omnibus Equity Compensation Plan and authorized the shares available from the expiring

2005

plan for future awards under the

2015

plan. In

2018

shareholders approved an additional

500

thousand shares for issuance under the plan. As of

March 31, 2019,

there were

506

thousand shares available for future awards.

tock

ptions

–

Bancorp had

stock options outstanding as of

March 31, 2019

and

December 31, 2018.

Stock appreciation rights (“SARs”)

–

SARs granted have a vesting schedule of

20%

per year and expire

ten

years after the grant date unless forfeited due to employment termination.

Fair values of SARs are estimated at the date of grant using the Black-Scholes option pricing model, a leading formula for calculating such value. This model requires the input of assumptions, changes to which can materially affect the fair value estimate. The following assumptions were used in SAR valuations at the grant date in each year:

Dividend yield and expected volatility are based on historical information for Bancorp corresponding to the expected life of SARs granted. Expected volatility is the volatility of the underlying shares for the expected term on a monthly basis. The risk free interest rate is the implied yield currently available on U.S. Treasury issues with a remaining term equal to the expected life of the awards. The expected life of SARs is based on past experience of similar-life SARs. Bancorp evaluates historical exercise and post-vesting termination behavior when determining the expected life.

	2019			2018

Dividend yield		2.52	%		2.56	%
Expected volatility		20.40	%		20.17	%
Risk free interest rate		2.55	%		2.96	%
Expected life of SARs (in years)		7.2			7.0

Restricted

stock awards (“RSAs”)

– RSAs granted to officers vest over

five

years. For all grants prior to

2015,

grantees are entitled to dividend payments during the vesting period. For grants in

2015

and forward, forfeitable dividends are deferred until shares are vested. Fair value of RSAs is equal to the market value of the shares on the date of grant.

Grants of performance stock units (“PSUs”)

– PSUs vest based upon service and a

three

-year performance period, which begins

January 1

of the

first

year of the performance period. Because grantees are

not

entitled to dividend payments during the performance period, the fair value of these PSUs is estimated based upon the market value of the underlying shares on the date of grant, adjusted for non-payment of dividends. Grants require a

one

year post-vesting holding period and the fair value of such grants incorporates a liquidity discount related to the holding period of

4.1%,

4.3%

and

5.1%

for

2019,

2018,

and

2017,

respectively.

Grants of restricted stock units (“RSUs”)

– RSUs are only granted to directors, are time-based and vest

months after grant date. Because grantees are entitled to deferred dividend payments at the end of the vesting period, fair value of the RSUs equals market value of underlying shares on the date of grant.

Bancorp utilized cash of

$210

thousand during the

first

three

months of

2019

for the purchase of shares upon the vesting of RSUs. This compares with cash used of

$156

thousand during the

first

three

months of

2018

for the purchase of shares upon the vesting of RSUs net of cash received for RSUs exercised.

Bancorp has recognized stock-based compensation expense SARs, RSAs, and PSUs within compensation expense, and RSUs for directors within other non-interest expense, as follows:

	Three months ended March 31, 2019
(In thousands)	Stock Appreciation Rights			Restricted Stock Awards			Restricted Stock Units			Performance Stock Units			Total

Expense	$	84		$	293		$	81		$	405		$	863
Deferred tax benefit		(18	)		(61	)		(17	)		(85	)		(181	)
Total net expense	$	66		$	232		$	64		$	320		$	682

	Three months ended March 31, 2018
(In thousands)	Stock Appreciation Rights			Restricted Stock Awards			Restricted Stock Units			Performance Stock Units			Total

Expense	$	73		$	276		$	63		$	411		$	823
Deferred tax benefit		(15	)		(58	)		(13	)		(87	)		(173	)
Total net expense	$	58		$	218		$	50		$	324		$	650

As of

March 31, 2019,

Bancorp has

$7.6

million of unrecognized stock-based compensation expense estimated to be recorded as follows:

(In thousands)	Stock
Year ended	Appreciation Rights		Restricted Stock Awards		Restricted Stock Units		Performance Stock Units		Total

Remainder of 2019	$	253	$	900	$	248	$	1,215	$	2,616
2020		293		1,053		2		947		2,295
2021		235		833		-		466		1,534
2022		181		561		-		-		742
2023		105		310		-		-		415
2024		7		25		-		-		32
Total estimated expense	$	1,074	$	3,682	$	250	$	2,628	$	7,634

The following table summarizes SARs activity and related information:

													Weighted
							Weighted				Weighted		average
							average		Aggregate		average		remaining
				Exercise			exercise		intrinsic		fair		contractual
(In thousands, except per share data)	SARs			price			price		value(1)		value		life (in years)

Outstanding, January 1, 2018		704		$14.02	-	$40.00	$	19.51	$	12,923	$	3.47		5.1
Granted		100		35.90	-	39.32		37.75		-		6.07
Exercised		(73	)	14.02	-	19.37		15.32		1,654		3.43
Forfeited		-			-			-		-		-
Outstanding, December 31, 2018		731		$14.02	-	$40.00	$	22.42	$	8,422	$	3.82		5.2

Outstanding, January 1, 2019		731		$14.02	-	$40.00	$	22.42	$	8,422	$	3.82
Granted		40		36.65	-	36.65		36.65		-		6.61
Exercised		(26	)	14.02	-	19.37		14.71		529		3.55
Forfeited		-			-			-		-		-
Outstanding, March 31, 2019		745		$14.02	-	$40.00	$	23.45	$	8,639	$	3.98		5.4


Vested and exercisable		535		$14.02	-	$40.00	$	19.01	$	8,169	$	3.35		4.1
Unvested		210		19.44	-	40.00		34.78		470		5.60		8.6
Outstanding, March 31, 2019		745		$14.02	-	$40.00	$	23.45	$	8,639	$	3.98		5.4

Vested at March 31, 2019		69		$19.37	-	$40.00	$	26.77	$	574	$	4.44

(

) -

trinsic value for

SARs is defined as the amount by which the current market price of the underlying stock exceeds the exercise

grant

price.

The following table summarizes activity for RSAs granted to officers:

(In thousands, except per share data)	RSAs			Grant date weighted average cost

Unvested at January 1, 2018		119		$	27.62
Shares awarded		40			35.89
Restrictions lapsed and shares released		(44	)		23.62
Shares forfeited		(5	)		31.35
Unvested at December 31, 2018		110		$	32.09

Unvested at January 1, 2019		110		$	32.09
Shares awarded		39			34.88
Restrictions lapsed and shares released		(39	)		28.66
Shares forfeited		-			-
Unvested at March 31, 2019		110		$	34.31

Expected shares to be awarded for PSUs granted to executive officers of Bancorp, the

three

-year performance period for which began

January 1

of the award year are as follows:

	Vesting				Expected
Grant	period		Fair		shares to
year	in years		value		be awarded
2017		3	$	35.66		61,893
2018		3		31.54		50,352
2019		3		32.03		43,602

In the

first

quarter of

2019,

Bancorp awarded

9,834

RSUs to directors of Bancorp with a grant date fair value of

$330

thousand.