7. Stock-Based Compensation

Prior to the adoption of FASB ASU 2016-09 in 2017, ASC 718 required the benefits of tax deductions in excess of recognized compensation cost to be reported as a financing cash flow, rather than as an operating cash flow. This requirement reduced net operating cash flows and increased net financing cash flows for 2016 and 2015. For the years ended December 31, 2016 and 2015, cash flows from financing activities were increased by $0.5 million, and $3.7 million, respectively, for such excess tax deductions. For the year ended December 31, 2017, cash flows from operating activities were increased by $1.7 million for such excess tax deductions,

The stockholders of the Company approved the Second Amended and Restated 2011 Omnibus Incentive Plan (the 2011 Omnibus Plan) and Amended and Restated 2003 Omnibus Incentive Plan (the 2003 Omnibus Plan) to allow the Company to issue equity based compensation to help attract and retain executive, managerial, supervisory or professional employees and non-employee directors. The 2011 Omnibus Plan has a total of 2,350,000 common stock shares reserved. The Company had reserved 1,236,000 shares of its common stock under the 2003 Omnibus Plan. Following stockholder approval of the 2011 Omnibus Plan, no additional grants have been made under the 2003 Omnibus Plan and by the terms of the Plan, no new grants may be made after January 22, 2013.

The 2011 Omnibus Plan and the 2003 Omnibus Plan provides for the grant or award of stock options; stock appreciation rights; restricted and unrestricted stock; restricted stock units; and Performance Unit Awards. Stock option awards are granted with an exercise price equal to the market price of the Company’s stock at the date of grant; stock option awards granted to employees under the plans to date are non-qualified stock options, have cliff vesting at the end of three years of continuous service, subject to earlier vesting upon a change of control and certain other events, and have a seven-year contractual term. There are no outstanding stock options to non-employee directors under the 2003 Omnibus Plan, and no stock options have been granted to non-employee directors under the 2011 Omnibus Plan.

The 2011 Omnibus Plan provides for an annual grant to each non-employee director of no more than 12,000 shares with the exact number of shares granted each year determined by the Compensation Committee of the Board. These share awards vest over three years subject to acceleration of vesting upon leaving the Board (other than for cause) or a change in control. Shares issued to each non-employee director under this provision were 1,942, 3,279, and 2,093 for the years ended December 31, 2017, 2016 and 2015, respectively. Non-employee directors were also issued in lieu of cash compensation 15,152, 23,734 and 17,969 units equivalent to shares in the Company’s common stock under the Directors’ Deferred Fee Plan during the years ended December 31, 2017, 2016 and 2015, respectively.

At December 31, 2017 and 2016, no shares remain reserved and unissued under the provisions of the 2003 Omnibus Plan,. At December 31, 2017 and 2016, 756,218 and 886,272 shares, respectively, remain reserved and unissued under the provisions of the 2011 Omnibus Plan, a portion of which are allocated to outstanding Performance Unit Awards, outstanding stock options and restricted stock described below. The Company has historically issued new shares to satisfy stock option exercises or other awards issued under the 2011 Omnibus Plan and 2003 Omnibus Plan.

The years ended December 31, 2017, 2016 and 2015 had stock option and restricted stock compensation expense of $2.3 million, $2.0 million and $1.8 million, respectively, included in salaries, wages and employees’ benefits. The Company recognized a tax benefit consistent with the appropriate tax rates for each of the respective periods. As of December 31, 2017, there is unrecognized compensation expense of $2.7 million related to unvested stock options and restricted stock, which is expected to be recognized over a weighted average period of 2.2 years.

The following table summarizes the activity of stock options for the year ended December 31, 2017 for employees:

	Options			Weighted Average Exercise price		Weighted Average Remaining Contractual Life (years)		Aggregate Intrinsic Value (000’s)
Outstanding at December 31, 2016		427,370		$	32.15
Granted		56,150
Exercised		(141,500	)
Forfeited		(7,020	)

Outstanding at December 31, 2017		335,000		$	34.75		5.0	$	10,400

Exercisable at December 31, 2017		25,280		$	34.38		4.6	$	920

The total intrinsic value of options exercised during the years ended December 31, 2017, 2016 and 2015 was $3.5 million, $2.5 million, and $3.5 million, respectively. The weighted-average grant-date fair value per share of options granted during the years ended December 31, 2017, 2016 and 2015 was $15.49, $9.99, and $15.41, respectively. The weighted-average grant-date fair value per share of options vested during the years ended December 31, 2017, 2016 and 2015 was $12.26, $12.95, and $5.66, respectively.

The following table summarizes the weighted average assumptions used in valuing options for the years ended December 31, 2017, 2016 and 2015:

	2017			2016			2015
Risk free interest rate		1.89	%		1.63	%		1.54	%
Expected life in years		4.5			4.5			4.5
Expected volatility		36.90	%		41.42	%		40.82	%
Dividend rate		—			—			—

The risk-free interest 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 life of the options represents the period of time that options granted are expected to be outstanding. Expected volatilities are based on historical volatility of the Company’s stock.

The following table summarizes the status of the Company’s unvested options as of December 31, 2017 and changes during the year ended December 31, 2017:

	Options			Weighted Average Grant-date Fair Value
Unvested at December 31, 2016		402,770		$	11.88
Granted		56,150			15.49
Vested		(142,180	)		12.26
Forfeited		(7,020	)		11.15

Unvested at December 31, 2017		309,720		$	12.38

The Company granted shares of restricted stock to certain key executives in February 2013, September 2014, May 2015, February 2016 and August 2017. All of these shares of restricted stock awards vest 25% after three years, 25% after four years and the remaining 50% after five years assuming the executive has been in continuous service to the Company since the award date, subject to earlier vesting upon a change in control. Commencing in 2017, the Company began granting shares of restricted stock as part of its long-term incentive plan. These shares of restricted stock cliff vest in three years, subject to earlier vesting upon a change in control. The value of restricted stock is based on the fair market value of the Company’s common stock at the date of grant.

The following table summarizes restricted stock activity during the year ended December 31, 2017:

	Shares			Weighted Average Grant-date Fair Value
Restricted Stock at December 31, 2016		66,168		$	21.91
Granted		33,800			49.12
Vested		(38,350	)		13.04
Forfeited		(3,761	)		46.35

Restricted Stock at December 31, 2017		57,857		$	42.10

Performance Unit Awards

Under the 2011 Omnibus Plan, the Compensation Committee of the Board of Directors approved Performance Unit Awards to a group of less than 20 management and executive employees.

The criteria for payout of the awards is based on a comparison over the three-year performance period of these awards of the total shareholder return (TSR) of the Company’s common stock compared to the TSR of the companies in the peer group established by the Compensation Committee. The stock-based awards are accounted for in accordance with ASC 718 with the expense amortized over the three-year vesting period based on the fair value using the Monte Carlo method at the date the awards are granted. Operating results from continuing operations include expense for the Performance Unit Awards of $1.9 million in 2017, $1.6 million in 2016 and $1.2 million in 2015. Shares earned under the Performance Unit Awards are issued in the first quarter of the year following the end of the performance period. There was an issuance of 49,188 shares for the January 2015-December 2017 performance period in February 2018, 30,893 shares for the January 2014-December 2016 performance period in February 2017, and 49,983 shares for the January 2013-January 2016 performance period in February 2016. The issuance of shares related to these awards would range from zero to a maximum of 132,556 shares per year as of December 31, 2017.