17. STOCK-BASED COMPENSATION PLANS

At December 31, 2017, the Company had three stock-based compensation plans: the 2011 Incentive Plan, the 2014 Incentive Plan, and the 2017 Incentive Plan (collectively, “the Plans”). Under the Plans, options to purchase common stock were granted to officers and key employees at exercise prices not less than the fair market value of the Company’s common stock on the date of the grant. The Company issues new common stock to satisfy stock option exercises and the issuance of restricted stock awards. The 2017 Incentive Plan was approved by the Company’s shareholders on May 9, 2017. Awards are no longer granted under the 2011 and 2014 plans.

Stock options and restricted stock awards were granted on August 25^th in each of the years 2017, 2016 and 2015. Under the Plans, stock options and restricted stock awards are valued at fair market value based on the Company’s closing stock price on the date of grant. Stock options granted in 2017 vest ratably over five years and expire ten years from the grant date. Stock options granted in 2016 and 2015 vest ratably over four years and expire six years from the grant date. Restricted stock granted in 2017, 2016, and 2015 vests ratably over four years. As of December 31, 2017, there were approximately 1.3 million shares remaining available for stock-based awards under the 2017 Incentive Plan.

In accordance with ASC 718, stock-based compensation expense was recognized in the 2017, 2016 and 2015 consolidated financial statements for stock options and restricted stock awards granted since 2011. An estimate of forfeitures, based on historical data, was included in the calculation of stock-based compensation. The effect of applying the expense recognition provisions of ASC 718 decreased Earnings before Provision for Income Taxes by $1,622,000 in 2017 and $1,559,000 in each of the years 2016 and 2015.

As of December 31, 2017, there was $1.8 million of total unrecognized compensation cost related to non-vested stock options granted in the years 2014 through 2017 which is expected to be recognized over the weighted-average remaining vesting period of 2.7 years. As of December 31, 2017, there was $1.6 million of total unrecognized compensation cost related to non-vested restricted stock awards granted in the years 2014 through 2017 which is expected to be recognized over the weighted-average remaining vesting period of 2.9 years.

The following weighted-average assumptions were used to determine compensation expense related to stock options in 2017, 2016 and 2015:


	2017			2016			2015
Risk-free interest rate		2.04	%		1.09	%		1.36	%
Expected dividend yield		3.15	%		3.29	%		3.12	%
Expected term		8.0			4.3 years			4.3 years
Expected volatility		19.7	%		21.3	%		21.6	%

The risk-free interest rate is based on U.S. Treasury bonds with a remaining term equal to the expected term of the award. The expected dividend yield is based on the Company’s expected annual dividend as a percentage of the market value of the Company’s common stock in the year of grant. The expected term of the stock options is determined using historical experience. The expected volatility is based upon historical stock prices over the most recent period equal to the expected term of the award.

The following tables summarize stock option activity under the Company’s plans:

Stock Options


	Years ended December 31,
	2017					2016					2015
*Stock Options*	Shares			Weighted Average Exercise Price		Shares			Weighted Average Exercise Price		Shares			Weighted Average Exercise Price
Outstanding at beginning of year		1,486,257		$	26.13		1,351,826		$	26.09		1,355,416		$	25.36
Granted		211,200			27.94		277,800			25.51		299,700			25.64
Exercised		(174,989	)		24.48		(123,294	)		24.28		(279,090	)		22.02
Forfeited or expired		(19,975	)		26.53		(20,075	)		26.52		(24,200	)		26.58
Outstanding at end of year		1,502,493		$	26.57		1,486,257		$	26.13		1,351,826		$	26.09
Exercisable at end of year		877,131		$	26.59		762,132		$	26.07		594,906		$	25.55
Weighted average fair market value of options granted	$	4.05				$	3.05				$	3.30


	Weighted Average Remaining Contractual Life (in Years)		Aggregate Intrinsic Value
Outstanding – December 31, 2017		3.8	$	4,733,000
Exercisable – December 31, 2017		2.4	$	2,746,000

The aggregate intrinsic value of outstanding and exercisable stock options is defined as the difference between the market value of the Company’s stock on December 29, 2017 of $29.72 and the exercise price multiplied by the number of in-the-money outstanding and exercisable stock options.

Non-vested Stock Options


*Non-vested Stock Options*	Number of Options			Weighted Average Exercise Price		Weighted Average Fair Value
Non-vested – December 31, 2014		751,582		$	26.74	$	3.12
Granted		299,700			25.64		3.30
Vested		(275,187	)		26.14		3.36
Forfeited		(19,175	)		26.59		3.14
Non-vested – December 31, 2015		756,920		$	26.53	$	3.10
Granted		277,800			25.51		3.05
Vested		(293,720	)		26.39		3.13
Forfeited		(16,875	)		26.37		3.10
Non-vested – December 31, 2016		724,125		$	26.20	$	3.07
Granted		211,200			27.94		4.05
Vested		(296,638	)		26.71		3.01
Forfeited		(13,325	)		26.16		3.12
Non-vested – December 31, 2017		625,362		$	26.55	$	3.43

The following table summarizes information about outstanding and exercisable stock options at December 31, 2017:


	Options Outstanding						Options Exercisable
Range of Exercise Prices	Number of Options Outstanding		Weighted Average Remaining Contractual Life (in Years)		Weighted Average Exercise Price		Number of Options Exercisable		Weighted Average Exercise Price
$23.53 to $25.86		689,993		3.4	$	25.11		350,843	$	24.67
$27.04 to $28.50		812,500		4.2	$	27.81		526,288	$	27.87
		1,502,493		3.8	$	26.57		877,131	$	26.59

The following table summarizes stock option activity for the years ended December 31:


	2017		2016		2015
	(Dollars in thousands)
Total intrinsic value of stock options exercised	$	618	$	455	$	1,705
Cash received from stock option exercises	$	4,284	$	2,994	$	6,144
Income tax benefit from the exercise of stock options	$	188	$	178	$	665
Total fair value of stock options vested	$	892	$	919	$	925

Restricted Stock

The following table summarizes restricted stock award activity during the years ended December 31, 2015, 2016 and 2017:

*Non-vested Restricted Stock*	Shares of Restricted Stock			Weighted Average Grant Date Fair Value
Non-vested – December 31, 2014		54,050		$	26.58
Issued		21,900			25.64
Vested		(20,700	)		25.94
Non-vested – December 31, 2015		55,250			26.45
Issued		26,900			25.51
Vested		(22,025	)		26.26
Forfeited		(1,625	)		26.30
Non-vested – December 31, 2016		58,500		$	26.09
Issued		30,800			27.94
Vested		(23,250	)		26.54
Non-vested – December 31, 2017		66,050		$	26.79

At December 31, 2017, the Company expected 66,050 shares of restricted stock to vest over a weighted-average remaining contractual term of 2.8 years. These shares had an aggregate intrinsic value of $2.0 million at December 31, 2017. The aggregate intrinsic value was calculated using the market value of the Company’s stock on December 29, 2017 of $29.72 multiplied by the number of non-vested restricted shares outstanding. The income tax benefit from the vesting of restricted stock for the years ended December 31 was $167,000 in 2017, $230,000 in 2016, and $221,000 in 2015.