Share-Based Compensation

Our non-employee directors and key employees are granted share-based awards through our SICP. We record these share-based awards as compensation costs over the respective service period for which services are received in exchange for an award of equity or equity-based compensation. The compensation cost is based primarily on the fair value of the shares awarded, using the estimated fair value of each share on the date it was granted and the number of shares to be issued at the end of the service period.

The table below presents the amounts included in net income related to share-based compensation expense for the three and nine months ended September 30, 2018 and 2017:



	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2018			2017			2018			2017
(in thousands)
Awards to non-employee directors	$	135		$	134		$	404		$	406
Awards to key employees	153			662			2,728			1,202
Total compensation expense	288			796			3,132			1,608
Less: tax benefit	(79		)	(320		)	(858		)	(647		)
Share-based compensation amounts included in net income	$	209		$	476		$	2,274		$	961

Non-employee Directors

Shares granted to non-employee directors are issued in advance of the directors’ service periods and are fully vested as of the grant date. We record a prepaid expense equal to the fair value of the shares issued and amortize the expense equally over a one-year service period. In May 2018, each of our non-employee directors received an annual retainer of 792 shares of common stock under the SICP for service as a director through the 2019 Annual Meeting of Stockholders. The table below presents the summary of the stock activity for awards to non-employee directors for the nine months ended September 30, 2018:



	Number of Shares		Weighted Average Fair Value
Outstanding—December 31, 2017	—		$	—
Granted	7,128		$	75.70
Vested	(7,128	)	$	75.70
Outstanding—September 30, 2018	—		$	—

At September 30, 2018, there was approximately $315,000 of unrecognized compensation expense related to these awards. This expense will be recognized over the directors' remaining service periods ending April 30, 2019. See Note 1, Summary of Accounting Policies, for additional information regarding ASU 2018-07 and its impact on the accounting for non-employee share-based payments.

Key Employees

The table below presents the summary of the stock activity for awards to key employees for the nine months ended September 30, 2018:



	Number of Shares		Weighted Average Fair Value
Outstanding—December 31, 2017	132,642		$	59.31
Granted	49,494		$	67.76
Vested	(29,786	)	$	47.39
Vested - Accelerated pursuant to separation agreement⁽¹⁾	(16,676	)	$	75.78
Expired	(3,933	)	$	49.66
Outstanding—September 30, 2018	131,741		$	67.43

⁽¹⁾Includes 2,569 shares that were forfeited.

In February 2018, our Board of Directors granted awards of 49,494 shares of common stock to key employees under the SICP. The shares granted are multi-year awards that will vest at the end of the three-year service period ending December 31, 2020. All of these stock awards are earned based upon the successful achievement of long-term financial results, which comprise market-based and performance-based conditions or targets. The fair value of each performance-based condition or target is equal to the market price of our common stock on the grant date of each award. For the market-based conditions, we used the Black-Scholes pricing model to estimate the fair value of each market-based award granted.

In March 2018, upon the election of certain of our executive officers, we withheld shares with a value at least equivalent to each such executive officer’s minimum statutory obligation for applicable income and other employment taxes related to shares that we awarded for the performance period ended December 31, 2017, remitted the cash to the appropriate taxing authorities, and paid the balance of such awarded shares to each such executive officer. We withheld 10,436 shares, based on the value of the shares on their award date, determined by the average of the high and low prices of our common stock. Total combined payments for the employees’ tax obligations to the taxing authorities were approximately $719,000.

In June 2018, the Company and a former executive officer entered into a separation agreement and release (the "Separation Agreement"). Pursuant to the Separation Agreement, three awards, representing a total of 14,107 shares of common stock previously granted to the executive officer under the SICP, immediately vested at the time of separation, and an additional 2,569 shares were forfeited. We settled the awards that vested in cash and recognized $1.1 million as share-based compensation expense.

At September 30, 2018, the aggregate intrinsic value of the SICP awards granted to key employees was approximately $11.1 million. At September 30, 2018, there was approximately $2.6 million of unrecognized compensation cost related to these awards, which is expected to be recognized as expense from 2018 through 2020.

Stock Options

We did not have any stock options outstanding at September 30, 2018 or 2017, nor were any stock options issued during these periods.