(8) Stock–Based Compensation Plan

Stock Options

The Company grants stock options from time to time to certain employees and independent directors pursuant to its 2007 Equity Incentive Plan, as amended (Plan). Under the Plan, a maximum of 3,421,980 share awards may be granted.

Stock options granted to employees have a vesting period of four years from the grant date, with 25% vesting after one year, and 1/48th vesting each month thereafter until fully vested. Stock options granted to independent directors vest in one year. All of the stock options have a contractual term of ten years.

The following table summarizes the Company’s stock option activities for the six months ended June 30, 2018 and 2017:



		Six Months Ended June 30,
	2018				2017
			Weighted				Weighted
			Average				Average
	Number of		Exercise		Number of		Exercise
	Shares		Price		Shares		Price
Options outstanding at January 1		859,560	$	16.44		1,428,255	$	16.31
Options granted		-	$	-		230,500	$	16.80
Options exercised		(9,393)	$	14.76		(205,100)	$	10.30
Options outstanding at June 30		850,167	$	16.46		1,453,655	$	17.24
Options exercisable		593,043	$	17.71		982,531	$	18.30
Weighted average remaining term		6.1 years				4.8 years

The aggregate intrinsic value of stock options exercised during the six months ended June 30, 2018 and 2017 was less than $0.1 million and $1.8 million, respectively. The aggregate intrinsic value of all options outstanding as of June 30, 2018 was $5.9 million based on the closing price of the Company’s common stock of $23.24 per share on June 29, 2018, the last trading day of the quarter.

The Company recognized stock-based compensation expense relating to stock options of $0.4 million for the three months ended June 30, 2018 and 2017, and $0.8 million and $0.7 million for the six months ended June 30, 2018 and 2017, respectively. As of June 30, 2018, the remaining unamortized stock-based compensation cost relating to stock options granted to the Company’s employees and independent directors was approximately $1.6 million, which is to be recognized over the remaining weighted average vesting period of approximately 2.2 years.

The fair value of stock options granted to the Company’s employees and independent directors was estimated using the Black-Scholes-Merton pricing model using the following weighted average assumptions:



	Six Months Ended June 30,
	2018		2017
Stock price	$	-	$	16.80
Exercise price	$	-	$	16.80

Expected term (years)		-		5.50 - 6.25
Expected volatility (%)		-		56.40 - 57.50
Risk-free interest rate (%)		-		1.77 - 2.14
Dividend yield (%)		-		-

The expected option term is calculated using the simplified method in accordance with SEC guidance. The expected volatility was derived from the average volatility of the Company’s common stock over a period approximating the expected term of the options. The risk-free rate is based on the daily U.S. Treasury yield curve with a term approximating the expected term of the options. No forfeiture rate was estimated on all options granted during the six months ended June 30, 2017, as the Company accounts for forfeitures as they occur.

Restricted Stock and Performance Stock

The Company grants restricted stock, comprising restricted stock units and restricted stock awards, from time to time to certain employees and non-employee directors pursuant to the Plan. The Company recognizes the compensation cost associated with restricted stock over a specified award vesting period based on the closing price of the Company’s common stock on the date of grant.

The Company grants performance stock to selected executives and other key employees. The performance stock vests at the end of a 3-year performance cycle if certain financial performance targets are met. The Company recognizes compensation cost associated with the performance stock ratably over the 3-year term based on the likelihood of performance targets being met. Compensation cost is based on the closing price of the Company’s common stock on the date of grant.

The following table summarizes the activity of restricted stock and performance stock under the Plan:



		Weighted
		Average
	Number of	Grant Date
	Shares	Fair Value
Outstanding at December 31, 2017	78,542	$	14.92
Granted	154,165	$	22.48
Vested	(28,359)	$	15.96
Outstanding at June 30, 2018	204,348	$	20.48

The Company recognized $0.4 million and $0.1 million of stock-based compensation expense relating to restricted stock and performance stock awards for the three months ended June 30, 2018 and 2017, respectively, and $0.6 million and $0.2 million for the six months ended June 30, 2018 and 2017, respectively. As of June 30, 2018, unamortized stock-based compensation expense relating to restricted stock and performance stock was $3.7 million, which will be recognized over the remaining average vesting period of 2.5 years.

Stock-based compensation expense is recorded as a component of administrative expenses in the Company’s consolidated statements of income with a corresponding credit to additional paid-in capital in the Company’s consolidated balance sheets.