The Company maintains certain share-based compensation plans, approved by the Company’s shareholders that are administered by the Management Development and Compensation Committee (the “MD&C Committee”) of the Board. The share-based compensation plans were established to allow for the grant of compensation awards to attract, motivate and retain employees, executive officers and non-employee directors who contribute to the long-term growth and profitability of the Company and to give such persons a proprietary interest in the Company, thereby enhancing their personal interest in the Company’s success.

The MD&C Committee approved the grant of restricted stock units (“RSUs”) and performance share units (“PSUs”) shown in the table below to certain members of management during the six months ended June 30, 2019.

Number of

Underlying

Weighted

Average

Per Share

Grant Date

Fair Value

RSUs

21,970

27.17

PSUs

52,976

25.49

The grant-date fair value for the RSUs granted during the six months ended June 30, 2019 is equal to the closing market price of our common stock on the date of grant reduced by the present value of the dividends expected to be paid on the underlying shares.

Fifty percent of the PSUs that ultimately vest is contingent on achieving specified total shareholder return (“TSR”) targets relative to the SNL Small Cap Bank & Thrift Index, a market index the MD&C Committee has selected as a peer group for this purpose. These shares will be earned based on the Company’s achievement of a relative TSR performance requirement, on a percentile basis, compared to the SNL Small Cap Bank & Thrift Index over a three-year performance period ended December 31, 2021. The shares earned based on the achievement of the TSR performance requirement, if any, will vest on the third anniversary of the grant date assuming the recipient’s continuous service to the Company. The remaining fifty percent of the PSUs that ultimately vest is contingent upon achievement of a return on average assets (“ROAA”) performance requirement for the Company’s fiscal year ended December 31, 2021. The shares earned based on the achievement of the ROAA performance requirement, if any, will vest on the third anniversary of the grant date assuming the recipient’s continuous service to the Company.

The grant-date fair value of the TSR portion of PSUs granted on February 26, 2019 was determined using the Monte Carlo simulation model on the date of grant, assuming the following (i) expected term of 2.84 years, (ii) risk free interest rate of 2.43%, (iii) expected dividend yield of 3.20% and (iv) expected stock price volatility over the expected term of the TSR award of 21.3%. The grant-date fair value of the TSR portion of PSUs granted on May 22, 2019 was determined using the Monte Carlo simulation model on the date of grant, assuming the following (i) expected term of 2.61 years, (ii) risk free interest rate of 2.18%, (iii) expected dividend yield of 3.60% and (iv) expected stock price volatility over the expected term of the TSR award of 22.0%. The Monte Carlo simulation model is a risk analysis method that selects a random value from a range of estimates. The grant-date fair value of the ROAA portion of PSUs granted during the six months ended June 30, 2019 is equal to the closing market price of our common stock on the date of grant reduced by the present value of the dividends expected to be paid on the underlying shares.

During the six months ended June 30, 2019, the Company issued a total of 2,283 shares of common stock in-lieu of cash for the annual retainer of three non-employee directors and granted a total of 8,226 restricted shares of common stock to non-employee directors, of which 4,113 shares vested immediately and 4,113 shares will vest after completion of a one-year service requirement. The market value of the stock and restricted stock at the close of the Nasdaq Global Select Market on the date of grant was $27.33.

The following is a summary of restricted stock awards and restricted stock units activity for the six months ended June 30, 2019:

	Number of Shares			Weighted Average Market Price at Grant Date
Outstanding at beginning of year		130,571		$	28.04
Granted		83,172			26.11
Vested		(26,373	)		26.05
Forfeited		(22,369	)		26.22
Outstanding at end of period		165,001		$	27.64

At June 30, 2019, there was $2.9 million of unrecognized compensation expense related to unvested restricted stock awards and restricted stock units that is expected to be recognized over a weighted average period of 2.3 years.

The Company uses the Black-Scholes valuation method to estimate the fair value of its stock option awards. There were no stock options awarded during the first six months of 2019 or 2018. There was no unrecognized compensation expense related to unvested stock options as of June 30, 2019. There was no stock option activity for the six months ended June 30, 2019.

The aggregate intrinsic value (the amount by which the market price of the stock on the date of exercise exceeded the market price of the stock on the date of grant) of option exercises for the six months ended June 30, 2018 was $222 thousand. The total cash received as a result of option exercises under stock compensation plans for the six months ended June 30, 2018 was $309 thousand.

The Company amortizes the expense related to share-based compensation awards over the vesting period. Share-based compensation expense is recorded as a component of salaries and employee benefits in the consolidated statements of income for awards granted to management and as a component of other noninterest expense for awards granted to directors. The share-based compensation expense included in the consolidated statements of income, is as follows (in thousands):

	Three months ended June 30,				Six months ended June 30,
	2019		2018		2019		2018
Salaries and employee benefits	$	310	$	298	$	461	$	566
Other noninterest expense		143		159		174		193
Total share-based compensation expense	$	453	$	457	$	635	$	759