15. Employee Benefit and Stock Compensation Plans

Stock Options and Awards — The Company has adopted an equity plan to reward and provide long-term incentives for directors and key employees of the Company. The term of all options issued may not exceed 10 years. The Company issues options and awards with a service vesting requirement, which is typically a three-year period. The Company issues new shares upon exercise of a stock option award.

The 2005 Equity Incentive Plan (the 2005 Plan) originally authorized the issuance 1,250,000 shares of common stock. The 2005 Plan was amended at the May 15, 2008 Annual Shareholders Meeting to increase the authorized shares available under the plan to 2,750,000 shares of common stock and shares available for restricted stock awards was increased by 250,000 shares to 500,000 shares. The 2005 Plan was further amended at the May 20, 2010 Annual Shareholders Meeting to increase the authorized shares available under the plan to 3,750,000 shares of common stock and shares available for restricted stock awards was increased by 1,500,000 shares to 2,000,000 shares. The 2005 Plan was amended at the May 15, 2014 Annual Shareholders Meeting to increase the authorized shares available to 5,250,000 and remove the restriction on the number of restricted stock awards. Under the 2005 Plan, the Compensation Committee of the Company has the authority to determine the identity of the key employees, consultants and directors who shall be granted options; the option price, which shall not be less than 85% of the fair market value of the common stock on the date of grant; and the manner and times at which the options shall be exercisable. Shares available for grant under the 2005 Plan at December 31, 2016, totaled 2,421,120.

During 2016, 2015 and 2014, the Company recognized compensation expense from continuing operations of $3.2 million, $3.3 million and $3.1 million, respectively, for stock-based compensation awards for which the requisite service was rendered during the year. Pursuant to the adoption of ASU 2016-09 in 2016, the Company has elected to recognize forfeitures as they occur. The Company recognized an income tax benefit of $1.2 million on compensation expense for 2016, 2015 and 2014. In addition, the Company recognized excess tax benefits of $0.3 million as a reduction to income tax in 2016.

ASC 718 requires the Company to select a valuation technique that meets the measurement criteria set forth in the standard. Valuation techniques that meet the criteria for estimating the fair values of employee stock options include a lattice model and a closed-form model (for example, the Black-Scholes formula). The Company uses the Black-Scholes option pricing model (Black-Scholes) to estimate the fair value of stock options. Restricted stock award fair values are based on the closing price of the Company stock on the award date.

The fair value of each option grant is estimated on the date of grant using the Black-Scholes. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield in effect at the time of grant. The expected term of options granted is based on the options’ vesting schedule and the Company’s historical exercise patterns for different employee groups and represents the period of time that options granted are expected to be outstanding. Expected volatilities are based on the historical volatility of the Company’s stock and vesting period of the option to be issued. The dividend yield is determined by annualizing the dividend rate as a percentage of the Company’s stock price. The following weighted-average assumptions were used for grants issued during the years ended December 31, 2016, 2015 and 2014:


	2016						2015						2014
			Range						Range						Range
	Weighted						Weighted						Weighted
	average		Low		High		average		Low		High		average		Low		High
Risk-free interest rate	1.38	%	0.87	%	1.99	%	1.38	%	0.99	%	1.84	%	1.38	%	0.79	%	1.82	%
Expected dividend yield	1.47	%	1.27	%	1.66	%	1.36	%	1.25	%	1.41	%	1.27	%	1.05	%	1.49	%
Expected volatility	28.61	%	25.92	%	34.27	%	33.15	%	25.90	%	37.65	%	40.34	%	29.38	%	52.50	%
Expected life (years)	3.9						4.0						3.9

The following table summarizes changes in stock option awards for the year ended December 31, 2016:


	2016
		Weighted average
Stock Option Awards	Shares	exercise price
Outstanding - beginning of year	461,050	$	8.87
Granted	57,233		11.95
Exercised	(216,268)		7.77
Forfeited	(16,016)		6.67
Outstanding - end of year	285,999	$	10.45
Exercisable - end of year	178,521	$	9.56

There were 285,999 options vested or expected to vest with a weighted average price of $10.45 at December 31, 2016. The weighted-average remaining terms at December 31, 2016 for options outstanding, vested or expected to vest and options exercisable at the end of the period were 4.0, 4.0 and 2.9 years, respectively. The aggregate intrinsic value for options outstanding, vested or expected to vest, and options exercisable at December 31, 2016 was $1.8 million, $1.8 million and $1.3 million, respectively. The weighted average grant date fair value of options granted during the years ended December 31, 2016, 2015 and 2014 was $2.77, $2.57 and $3.06, respectively. The total intrinsic value of options exercised during the years ended December 31, 2016, 2015 and 2014 was $1.1 million, $0.8 million and $0.7 million, respectively.

The following table summarizes the Company’s outstanding stock options:


	Options outstanding				Options exercisable
		Weighted		Weighted		Weighted
		average		average		average
	Number	exercise		remaining	Number	exercise
Range of exercise price	outstanding	price		life (years)	exercisable	price
$6.00 - $7.54	78,834	$	7.14	1.2	78,834	$	7.14
$7.57 - $11.07	58,516		10.18	4.4	32,850		9.78
$11.08 - $12.06	58,750		11.50	4.8	32,918		11.46
$12.10 - $12.65	57,820		12.46	5.8	13,669		12.40
$12.70 - $15.20	32,079		13.50	5.7	20,250		13.61
	285,999	$	10.45	4.0	178,521	$	9.56

The following table summarizes changes in restricted stock awards for the year ended December 31, 2016:


	2016
		Weighted average
		grant date
Restricted Stock Awards	Shares	fair value
Unvested - beginning of year	500,034	$	10.85
Granted	282,750		11.54
Vested	(290,694)		10.43
Forfeited	(24,887)		11.45
Unvested - end of year	467,203	$	11.50

Fair value of vested shares (in thousands)		$	3,344

The weighted average grant date fair value of restricted stock awards granted during the years ended December 31, 2016, 2015 and 2014, was $11.54, $11.52 and $11.33, respectively. The fair value of restricted stock amounts vested during the years ended December 31, 2016, 2015 and 2014 was $3.3 million, $4.5 million and $3.9 million, respectively.

At December 31, 2016, there was $3.4 million of total unrecognized compensation cost related to unvested share-based compensation awards granted under the 2005 Plan. The cost is expected to be recognized over a weighted-average period of 1.8 years.

Employee Stock Purchase Plan (ESPP) — The ESPP was established in January 2000 and is administered by the Compensation Committee of the Company. At the 2014 Annual Shareholders Meeting, shareholders of the Company approved an amendment to the ESPP, increasing the number of shares of common stock available for awards under the plan by 200,000. Employees may elect to have a percentage of their payroll deducted and applied to the purchase of Common Stock at a discount. In addition, the Company may make a matching contribution up to 50% of an employee’s deduction toward the purchase of additional Common Stock. No matching contribution was made for the years presented in the table below.


	For the year ended December 31,
	2016	2015	2014
Available ESPP shares - beginning of year	233,879	273,188	116,637
Plan amendment increasing available shares	-	-	200,000
Purchases	(36,813)	(39,309)	(43,449)
Available ESPP shares - end of year	197,066	233,879	273,188

Employee 401(k) Plan — The Company has a defined contribution plan covering substantially all its employees. Employees may contribute up to the maximum allowed by the Internal Revenue Service. The Company may also make discretionary contributions within the limits of the 401(k) Plan and Internal Revenue Service limitations. The Company matched 4.5%, 3.0% and 4.5% of eligible compensation for the years ended December 31, 2016 2015 and 2014. Employer contributions charged to expense for the years ended December 31, 2016, 2015 and 2014 were $1.8 million, $1.3 million and $1.5 million, respectively, and are included in the consolidated statements of income under the caption “Salaries and employee benefits.”