12.	STOCK-BASED COMPENSATION

The Company maintains a stock incentive plan under which incentive and nonqualified stock options and other stock awards

may

be granted. On

March

2006,

the Company’s Board of Directors (the “Board”) adopted, and shareholders later approved, the

2006

Stock Option Plan (the

“2006

Plan”). Under the

2006

Plan,

750,000

shares were reserved for the issuance of stock options to directors, officers, key employees, and others. The option exercise price under the

2006

Plan is the fair market value of the stock on the date the option is granted. The fair market value is determined by the average of the highest and lowest sales prices for a share of the Company’s common stock, on its primary exchange, on the same date that the option is granted. On

March

13,

2014,

the Company’s Board of Directors adopted, and on

May

29,

2014

our shareholders approved, the

2014

Amended and Restated Stock Option and Incentive Plan (the

“2014

Plan”) which replaced the

2006

Plan. The shares which remained reserved under the

2006

Plan were carried over to the

2014

Plan and are reserved for the issuance of stock awards to directors, officers, key employees, and others. The stock option exercise price and the restricted stock purchase price under the

2014

Plan shall not be less than

85%

of the fair market value of the Company’s common stock on the date the award is granted. The fair market value is determined by the closing price of the Company’s common stock, on its primary exchange, on the same date that the option or award is granted.

Outstanding nonqualified stock options at

December

31,

2016,

must be exercised within either

five

ten

years from the date of grant. Outstanding nonqualified stock options granted to members of the Company’s Board of Directors vested immediately while outstanding nonqualified stock options issued to employees vest in increments of

20%

25%

each year.

March

2016,

2,275

shares of common stock were granted to non-employee directors under the

2014

Plan. This stock award has a grant date fair value of

$30.80

per share, based on the closing price of the Company’s stock on the date of grant and vests immediately. Also in

March

2016,

the Board of Directors granted

5,000

restricted shares of the Company’s stock to the Company’s Chief Executive Officer. This restricted stock award has a grant date fair value of

$30.81,

based on the closing price of the Company’s stock on the date of grant, with

25%

of the award vesting immediately and

25%

vesting for each of the next

three

years.

March

2015,

1,225

shares of common stock were granted to non-employee directors under the

2014

Plan. This stock award has a grant date fair value of

$57.27

per share, based on the closing price of the Company’s stock on the date of grant and vested immediately.

November

2014,

the Board of Directors granted

9,500

restricted shares of the Company’s stock to certain key employees. This restricted stock award has a grant date fair value of

$42.65,

based on the closing price of the Company’s stock on the date of grant, of which

20%

of the award vested immediately and the remaining award vests in increments of

20%

each year for the next

four

years.

March

2014,

3,024

shares of common stock were granted to non-employee directors under the

2014

Plan. This stock award has a grant date fair value of

$19.88

per share, based on the closing price of the Company’s stock on the date of grant and vested immediately.

May

2012,

the Company granted to certain key employees,

104,000

nonqualified stock options. The exercise price for these awards was fixed at the grant date and was equal to the fair market value of the stock on that date. These nonqualified stock options vest in increments of

20%

each year.

November

2010,

the Company granted to certain key employees,

50,000

nonqualified stock options and

64,000

performance-based variable nonqualified stock options. The exercise price for these awards was fixed at the grant date and was equal to the fair market value of the stock on that date. The nonqualified stock options vested in increments of

20%

each year. The performance-based nonqualified stock options were eligible to be earned in

four

quarterly installments and

one

annual installment with vesting to occur in increments of

20%

each year for any options earned. In order to meet the performance criteria, certain quarterly and annual “operating ratio” results must have been achieved during

2011.

During

2011,

4,442

performance-based variable nonqualified stock options were earned with vesting beginning during the

third

quarter of

2012.

The remaining

59,558

performance-based variable nonqualified stock options expired as the related performance criteria was not met.

During

2016

and

2015,

there were

grants of nonqualified stock options. At

December

31,

2016,

355,000

shares were available for granting future options or restricted stock.

The grant date fair value of stock and stock options vested during

2016,

2015

and

2014

was approximately

$273,000,

$274,000

and

$263,000,

respectively. Total pre-tax stock-based compensation expense, recognized in Salaries, wages and benefits was approximately

$302,000

during

2016

and includes approximately

$70,000

recognized as a result of the grant of

325

shares of stock to each non-employee director during the

first

quarter of

2016.

The Company recognized a total income tax benefit of approximately

$113,000

related to stock-based compensation expense during

2016.

The recognition of stock-based compensation expense decreased diluted and basic earnings per common share by approximately

$0.03

and

$0.02,

respectively during

2016.

As of

December

31,

2016,

the Company had stock-based compensation plans with total unvested stock-based compensation expense of approximately

$239,000

which is being amortized on a straight-line basis over the remaining vesting period. As a result, the Company expects to recognize approximately

$135,000

in additional compensation expense related to unvested option awards during

2017,

$98,000

in additional compensation expense related to unvested option awards during

2018

and

$6,000

in additional compensation expense related to unvested option awards during

2019.

Total pre-tax stock-based compensation expense, recognized in Salaries, wages and benefits was approximately

$267,000

during

2015

and included approximately

$70,000

recognized as a result of the grant of

175

shares of stock to each non-employee director during the

first

quarter of

2015.

The Company recognized a total income tax benefit of approximately

$103,000

related to stock-based compensation expense during

2015.

The recognition of stock-based compensation expense decreased diluted and basic earnings per common share by approximately

$0.02

during

2015.

Total pre-tax stock-based compensation expense, recognized in Salaries, wages and benefits was approximately

$270,000

during

2014

and included approximately

$60,000

recognized as a result of the grant of

504

shares of stock to each non-employee director during the

first

quarter of

2014

and approximately

$94,000

recognized as a result of the grant of

9,500

shares of stock to certain key employees during the

fourth

quarter of

2014.

The Company recognized a total income tax benefit of approximately

$106,000

related to stock-based compensation expense during

2014.

The recognition of stock-based compensation expense decreased diluted and basic earnings per common share by approximately

$0.02

during

2014.

Transactions in stock options under these plans are summarized as follows:

	Shares Under Option			Weighted- Average Exercise Price

Outstanding—January 1, 2014:		164,098		$	10.99
Granted		-			-
Exercised		(77,708	)		10.88
Canceled		(42	)		11.22

Outstanding—December 31, 2014:		86,348		$	11.09
Granted		-			-
Exercised		(20,250	)		11.65
Canceled		-			-

Outstanding—December 31, 2015:		66,098		$	10.92
Granted		-			-
Exercised		(7,917	)		11.41
Canceled		(2,050	)		10.91

Outstanding—December 31, 2016:		56,131		$	10.85

Options exercisable—December 31, 2016:		43,331		$	10.84

Information related to the Company’s option activity as of

December

31,

2016,

and changes during the year then ended is presented below:

	Shares Under Option			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term		Aggregate Intrinsic Value*
				(per share)		(in years)
Outstanding at January 1, 2016		66,098		$	10.92
Granted		-			-
Exercised		(7,917	)		11.41
Canceled/forfeited/expired		(2,050	)		10.91
Outstanding at December 31, 2016		56,131		$	10.85		3.2	$	849,026

Fully vested and exercisable at December 31, 2016		43,331		$	10.84		2.6	$	656,002

___________________________

* The intrinsic value of a stock option is the amount by which the market value of the underlying stock exceeds the exercise price of the option. The per share market value of our common stock, as determined by the closing price on

December

31,

2016,

was

$25.98.

There were

options granted during

2016,

2015,

2014.

The weighted-average grant-date fair value of options either canceled, forfeited, or expired during

2016

was

$6.07.

There were

options either canceled, forfeited, or expired during

2015.

The weighted-average grant-date fair value of options either canceled, forfeited, or expired during

2014

was

$6.34

per share.

The total intrinsic value of options exercised during the years ended

December

31,

2016,

2015

and

2014,

were approximately

$101,000,

$940,000

and

$1,355,000,

respectively.

A summary of the status of the Company’s nonvested options and restricted stock as of

December

31,

2016

and changes during the year ended

December

31,

2016,

is presented below:

	Stock Options					Restricted Stock
	Number of Options			Weighted- Average Grant Date Fair Value		Number of Shares			Weighted- Average Grant Date Fair Value*
Nonvested at January 1, 2016		28,205		$	6.07		5,700		$	42.65
Granted		-			-		7,275			30.81
Canceled/forfeited/expired		(2,050	)		6.07		(450	)		42.65
Vested		(13,355	)		6.07		(5,475	)		35.02
Nonvested at December 31, 2016		12,800		$	6.06		7,050		$	36.35

___________________________

* The weighted-average grant date fair value was based on the closing price of the Company’s stock on the date of the grant.

The number, weighted average exercise price and weighted average remaining contractual life of options outstanding as of

December

31,

2016

and the number and weighted average exercise price of options exercisable as of

December

31,

2016

is as follows:

Exercise Price		Shares Under Outstanding Options		Weighted-Average Remaining Contractual Term		Shares Under Exercisable Options
				(in years)
	$10.44		15,000		1.2		15,000
	$10.90		6,000		0.4		6,000
	$10.90		25,600		5.4		12,800
	$11.22		5,531		3.9		5,531
	$11.54		4,000		0.2		4,000
			56,131		3.2		43,331

Cash received from option exercises totaled approximately

$91,000,

$236,000

and

$846,000

during the years ended

December

31,

2016,

2015

and

2014,

respectively. The Company issues new shares upon option exercise.