16. SHARE-BASED COMPENSATION

In accordance with ASC 718, compensation expense is recognized only for those shares expected to vest, based on the Company's historical experience and future expectations. The following table summarizes the effects of share-based compensation for options and awards granted under the Company's equity incentive plans for each of the periods presented:



	Year Ended December 31,
	2018			2017			2016
	(Dollars in thousands)
Salaries and employee benefits	$	3,787		$	3,266		$	3,094
Directors stock awards	255			150			97
Income tax benefit	(1,227		)	(1,903		)	(1,269		)
Net share-based compensation effect	$	2,815		$	1,513		$	1,922

Upon exercise or vesting of a share-based award, if the tax deduction exceeds the compensation cost that was previously recorded for financial statement purposes, this will result in an excess tax benefit. Effective January 1, 2017, ASU 2016-09, "Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting" requires the Company to recognize all excess tax benefits or tax deficiencies through the income statement as income tax expense/benefit. Under previous GAAP, any excess tax benefits were recognized in additional-paid-in-capital to offset current-period and subsequent-period tax deficiencies. During 2018 and 2017, the Company recorded an income tax benefit of $0.1 million and $0.5 million, respectively, as a result of restricted stock units vesting during the year.

The Company's share-based compensation arrangements are described below:

Equity Incentive Plans

We have adopted equity incentive plans for the purpose of granting options, restricted stock and other equity based awards for the Company's common stock to directors, officers and other key individuals. Option awards are generally granted with an exercise price equal to the market price of the Company's common stock at the date of grant; those option awards generally vest based on three or five years of continuous service and have 10-year contractual terms. Certain option and share awards provide for accelerated vesting if there is a change in control (as defined in the stock option plans below). We have historically issued new shares of common stock upon exercises of stock options and purchases of restricted awards.

In September 2004, we adopted and our shareholders approved the 2004 Stock Compensation Plan ("2004 Plan") making available 1,500,000 shares for grants to employees and directors. Upon adoption of the 2004 Plan, all unissued shares from the previous 1997 Plan were frozen and no new options were granted under the 1997 Plan. In May 2007, the 2004 Plan was amended to increase the number of shares available for grant by an additional 1,000,000 shares. In April 2011, the 2004 Plan was amended to increase the number of shares authorized from 1,402,589 to 4,944,831.

In April 2013, we adopted and our shareholders approved the 2013 Stock Compensation Plan ("2013 Plan") making available 2,200,000 shares for grants to employees and directors. Upon adoption of the 2013 Plan, all unissued shares from the 2004 Plan were frozen and no new grants will be granted under the 2004 Plan. Shares may continue to be settled under the 2004 Plan pursuant to previously outstanding awards. New shares are issued from the 2013 Plan.

As of December 31, 2018, 2017 and 2016, a total of 1,468,137, 1,567,912 and 1,671,752 shares, respectively, were available for future grants under our 2013 Plan.

Stock Options

The fair value of each option award is estimated on the date of grant based on the following:

Valuation and amortization method—We estimate the fair value of stock options granted using the Black-Scholes option pricing formula and a single option award approach. We use historical data to estimate option exercise and employee termination activity within the valuation model; separate groups of employees that have similar historical exercise behavior are considered separately for valuation purposes. This fair value is then amortized on a straight-line basis over the requisite service periods of the awards, which is generally the vesting period.

Expected life—The expected life of options represents the period of time that options granted are expected to be outstanding.

Expected volatility—Expected volatilities are based on the historical volatility of the Company's common stock.

Risk-free interest rate—The risk-free interest rate for periods within the contractual life of the option is based on the Treasury yield curve in effect at the time of grant.

Expected dividend—The expected dividend assumption is based on our current expectations about our anticipated dividend policy.

The following is a summary of option activity for our stock option plans for the year ended December 31, 2018:



	Number of Units		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value (in thousands)
Stock options outstanding as of January 1, 2018	160,259		$	19.22
Changes during the year:
Granted	—		—
Exercised	(10,940	)	14.31
Expired	(1,549	)	377.60
Forfeited	(126	)	79.00
Stock options outstanding as of December 31, 2018	147,644		$	15.77	3.3	$	1,449

Vested and exercisable as of December 31, 2018	147,644		$	15.77	3.3	$	1,449

The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying option awards and the quoted price of the Company's common stock for the options that were in-the-money as of December 31, 2018.

During the years ended December 31, 2018 and 2016, the aggregate intrinsic value of options exercised under our stock option plan determined as of the date of exercise was $0.2 million and $0.8 million, respectively. There were no options exercised during the year ended December 31, 2017.

As of December 31, 2018, all compensation costs related to stock options granted to employees under our stock option plans have been recognized.

As of December 31, 2018, all shares have been vested. There were no shares that vested in 2018. The total fair value of options vested during the years ended December 31, 2017 and 2016 was $0.5 million, and $0.4 million, respectively.

No stock options were granted during the years ended December 31, 2018, 2017 and 2016.

Restricted Stock Awards and Units

Under the 1997, 2004 and 2013 Plans, we awarded restricted stock awards and units to our non-officer directors and certain senior management personnel. The awards typically vest over a three or five year period from the date of grant and are subject to forfeiture until performance and employment targets are achieved. Compensation expense is measured as the market price of the stock awards on the grant date, and is recognized over the specified vesting periods.

As of December 31, 2018, there was $6.1 million of total unrecognized compensation cost related to restricted stock awards and units that is expected to be recognized over a weighted-average period of 2.3 years.

The table below presents the activity of restricted stock awards and units for each of the periods presented:



	Number of Units		Weighted Average Grant Date Fair Value		Fair Value of Restricted Stock Awards and Units That Vested During The Year (in thousands)
Unvested as of December 31, 2015	463,917		$	17.41

Changes during the year:
Granted	296,078		23.65
Forfeited	(66,972	)	20.97
Vested	(255,326	)	15.83		$	5,806
Unvested as of December 31, 2016	437,697		22.01

Changes during the year:
Granted	126,204		31.35
Forfeited	(31,570	)	24.89
Vested	(134,780	)	19.81		4,224
Unvested as of December 31, 2017	397,551		25.49

Changes during the year:
Granted	118,846		29.47
Forfeited	(25,481	)	27.39
Vested	(128,191	)	24.59		3,763
Unvested as of December 31, 2018	362,725		26.98