STOCK-BASED COMPENSATION

We account for stock-based compensation under the fair value recognition provisions of ASC Topic 718 - Compensation - Stock Compensation. We recognize stock-based compensation cost over the award’s requisite service period on a straight-line basis for time-based restricted stock grants and performance-based restricted stock grants. We record forfeitures as they occur for all stock-based compensation.

The following table presents our total stock-based compensation expense:



	Three Months Ended September 30,				Nine months ended September 30,
	2018		2017		2018		2017
Employee stock-based compensation expense
Pre-tax	$	248	$	393	$	736	$	1,179
Post-tax ⁽¹⁾	196		310		581		931
Director stock-based compensation expense
Pre-tax	379		244		940		752
Post-tax ⁽¹⁾	299		193		743		594

⁽¹⁾ The after tax amounts are determined using the 21% corporate federal tax rate.

We had approximately $2,636,000 of unrecognized stock compensation expense at September 30, 2018 related to non-vested stock-based compensation granted, which we expect to recognize over a weighted-average period of approximately 2.64 years. We had approximately $906,000 of unrecognized director stock-based compensation expense at September 30, 2018 related to non-vested director stock-based compensation granted, which we expect to recognize over a weighted-average period of approximately 0.6 years.

Restricted stock, restricted stock units and performance stock units

Stock-based compensation cost for restricted stock awards, restricted stock units and performance stock units is measured based on the closing fair market value of our common stock on the date of grant which vest in equal installments over the requisite service period of typically three years. Restricted stock awards granted to non-employee directors vest over a one-year period. Each restricted stock unit and performance stock unit represents our obligation to deliver to the holder one share of common stock upon vesting.

Performance-based restricted stock grants vest based on return on average equity compared to a defined group of peer companies. On the grant date, we issue the target number of performance stock units. They are subject to forfeitures if performance goals are not met. The actual number of performance stock units earned can vary from zero to 150 percent of the target for the 2018 awards.

We granted 88,392 and 174,602 shares of restricted common stock during the three and nine-month periods ended September 30, 2018, respectively, which had a weighted-average grant date fair value of $20.44 and $20.07 per share, respectively. We granted zero shares of restricted common stock during the three-month period ended September 30, 2017. We granted 155,122 shares of restricted common stock during the nine-month period ended September 30, 2017, which had a weighted-average grant date fair value of $15.57 per share.

The following table presents certain information related to the activity of our non-vested common stock grants:



	Number of Restricted Shares	Weighted Average Grant Date Fair Value
Outstanding as of December 31, 2017	212,094	$	16.44
Granted	174,602	20.07
Less: Forfeited	17,077	18.07
Less: Vested	139,183	16.38
Outstanding as of September 30, 2018	230,436	$	19.11

Stock options

Stock option fair value was estimated on the grant date using the Black-Scholes-Merton formula. Stock options vest in equal installments over the requisite service period of typically three years. The following weighted-average assumptions were used to value the stock options granted:



	2018
Expected annual dividend yield	1.17	%
Expected volatility	41.31	%
Risk-free interest rate	2.98	%
Expected term	6	years

Expected annual dividend yield is based on the current quarterly dividend of $0.06 per share and the stock price on the grant date. The expected volatility is a historical volatility calculated based on the daily closing prices over a period equal to the expected term. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the grant date. Expected term takes into account the three-year graded vesting term and the 10-year contractual term of the option.

The following table presents certain information related to the activity of our non-vested stock option grants:



	Number of Stock Options	Weighted Average Grant Date Fair Value		Weighted Average Exercise Prices
Outstanding as of December 31, 2017	—	$	—	$	—
Granted	29,464	8.01		20.44
Less: Forfeited	—	—		—
Less: Vested	—	—		—
Outstanding as of September 30, 2018	29,464	$	8.01	$	20.44
Exercisable as of September 30, 2018	—	$	—	$	—