NOTE 17. STOCK-BASED COMPENSATION

The Company awards its employees and directors various forms of stock-based incentives under certain plans approved by its shareholders. Awards granted under the plans may be in the form of qualified or nonqualified stock options, restricted stock, stock appreciation rights (“SARs”), long-term incentive compensation units consisting of cash and common stock, or any combination thereof within the limitations set forth in the plans. The plans provide that the aggregate number of shares of the Company’s common stock which may be subject to award may not exceed 2,985,000 subject to adjustment in certain circumstances to prevent dilution. At December 31, 2016, there were 968,749 shares available to be issued under the plans.

All stock options have an exercise price that is equal to the closing fair market value of the Company’s stock on the date the options were granted. Options granted under the plans generally vest over a five-year period and have a 10-year maximum term. Most options granted since 2005 contain performance-based vesting conditions.

The Company did not grant any options during 2016, 2015 or 2014. As of December 31, 2016, there was no unrecognized compensation cost related to nonvested share-based compensation arrangements granted related to performance or non-performance-based options.

As of December 31, 2016, the Company has 279,727 outstanding restricted shares granted under the plans as compensation to certain employees. These shares carry dividend and voting rights. Sales of these shares are restricted prior to the date of vesting, which is three to four years from the date of the grant. Shares issued under the plans are recorded at their fair market value on the date of their grant. The compensation expense is recognized on a straight-line basis over the related vesting period. In 2016, 2015 and 2014, compensation expense related to these grants was approximately $2,261,000, $1,485,000, and $2,058,000, respectively. The total income tax benefit related to these grants was approximately $721,000, $1,069,000 and $861,000 in 2016, 2015 and 2014, respectively.

It is the Company’s policy to issue new shares for stock option exercises and restricted stock rather than issue treasury shares. The Company recognizes stock-based compensation expense on a straight-line basis over the options’ related vesting term. The Company did not record any stock-based compensation expense related to stock options during 2016, 2015 and 2014. The total income tax benefit related to stock options was approximately $177,000, $102,000 and $49,000 in 2016, 2014 and 2013, respectively.

The fair value of each stock-based compensation grant is estimated on the date of grant using the Black-Scholes option-pricing model.

A summary of the activity of non-performance-based and performance-based options as of December 31, 2016 is presented below:

	Non-Performance-Based								Performance-Based
	Shares		Weighted- Average Exercise Price		Weighted Average Contractual Term		Aggregate Intrinsic Value $ (000)		Shares		Weighted- Average Exercise Price		Weighted Average Contractual Term		Aggregate Intrinsic Value $ (000)
Under option, beginning of year		72,483	$	18.55						224,132	$	16.92
Granted		-		-						-		-
Exercised		(13,880)		14.38			$	200		(40,714)		14.68			$	765
Forfeited		-		-						(40,508)		19.67
Under option, end of year		58,603	$	14.76		1.14	$	1,620		142,910	$	15.06		1.22	$	3,909
Exercisable at end of year		58,603	$	14.76		1.14	$	1,620		142,910	$	15.06		1.22	$	3,909

A summary of the activity of non- performance-based and performance-based options as of December 31, 2015 is presented below:

	Non-Performance-Based								Performance-Based
	Shares		Weighted- Average Exercise Price		Weighted Average Contractual Term		Aggregate Intrinsic Value $ (000)		Shares		Weighted- Average Exercise Price		Weighted Average Contractual Term		Aggregate Intrinsic Value $ (000)
Under option, beginning of year		88,111	$	18.00						359,331	$	16.74
Granted		-		-						-		-
Exercised		(15,628)		15.47			$	242		(59,507)		15.39			$	916
Forfeited		-		-						(75,691)		17.37

Under option, end of year		72,483	$	18.55		2.13	$	1,331		224,132	$	16.92		1.80	$	3,697
Exercisable at end of year		72,483	$	18.55		2.13	$	1,331		189,587	$	15.91		2.06	$	3,252

A summary of the activity of non- performance-based and performance-based options as of December 31, 2014 is presented below:

	Non-Performance-Based								Performance-Based
	Shares		Weighted- Average Exercise Price		Weighted Average Contractual Term		Aggregate Intrinsic Value $ (000)		Shares		Weighted- Average Exercise Price		Weighted Average Contractual Term		Aggregate Intrinsic Value $ (000)
Under option, beginning of year		115,459	$	17.24						371,000	$	16.76
Granted		-		-						-		-
Exercised		(25,395)		14.81			$	148		(6,477)		11.05			$	72
Forfeited		(1,953)		14.88						(5,192)		25.51
Under option, end of year		88,111	$	18.00		2.71	$	884		359,331	$	16.74		2.11	$	2,955
Exercisable at end of year		88,111	$	18.00		2.71	$	884		341,030	$	17.23		2.00	$	2,629

A summary of the status of the Company’s restricted stock awards as of and for the years ended December 31, 2016, 2015 and 2014 is presented below:

	2016				2015				2014
	Shares		Weighted- Average Grant-Date Fair Value		Shares		Weighted- Average Grant-Date Fair Value		Shares		Weighted- Average Grant-Date Fair Value
Nonvested shares at beginning of year		285,326	$	17.29		323,151	$	13.46		377,725	$	11.78
Granted		155,751		29.26		71,000		23.46		82,047		20.99
Vested		(154,350)		13.10		(108,825)		9.96		(126,050)		13.12
Forfeited		(7,000)		23.80		-		-		(10,571)		15.61
Nonvested shares at end of year		279,727		26.10		285,326		17.29		323,151		13.46

The balance of unearned compensation related to restricted stock grants as of December 31, 2016, 2015 and 2014 was approximately $3,878,000, $1,749,000, and $1,568,000, respectively. At December 31, 2016, the cost is expected to be recognized over a weighted-average period of 1.4 years.