Stock-Based Compensation

9 Months Ended

Sep. 30, 2017

The Company issues stock-based compensation in the form of nonvested restricted stock and stock appreciation rights (SARs). Most of the awards are issued during the first quarter of each year. The stock-based compensation expense that has been charged against income was $3.0 million and $2.6 million in the three months ended September 30, 2017 and 2016, respectively, and $9.1 million and $8.9 million in the nine months ended September 30, 2017 and 2016, respectively.

The Company adopted ASU 2016-09, "Improvements to Employee Share-Based Payment Accounting," on January 1, 2017. The Company elected to change its method of accounting for forfeitures, as allowed by this guidance. In 2016 and prior years, accruals of compensation cost were reduced by an estimate of awards not expected to vest and further adjusted when actual forfeitures occurred. In 2017 and subsequent years, forfeitures will be accounted for when they occur and recognized in compensation cost at that time. The effect of this change, which was recognized as a cumulative-effect adjustment on January 1, 2017, increased equity and increased deferred tax assets by approximately $1.3 million. ASU 2016-09 also changed the classification of excess tax benefits and deficiencies arising from stock-based payment transactions, resulting in reductions in income tax expense of $4.5 million in the first quarter of 2017, $1.6 million in the second quarter of 2017 and $619 thousand in the third quarter of 2017.

Nonvested stock awards generally vest in 4 to 7 years and contain restrictions as to transferability, sale, pledging, or assigning, among others, prior to the end of the vesting period. Dividend and voting rights are conferred upon grant. A summary of the status of the Company’s nonvested share awards as of September 30, 2017, and changes during the nine month period then ended, is presented below.



	Shares		Weighted Average Grant Date Fair Value
Nonvested at January 1, 2017	1,392,451		$34.67
Granted	242,244		57.31
Vested	(403,586	)	30.87
Forfeited	(20,250	)	40.72
Nonvested at September 30, 2017	1,210,859		$40.36

SARs are granted with exercise prices equal to the market price of the Company’s stock at the date of grant. SARs vest ratably over 4 years of continuous service and have 10-year contractual terms. All SARs must be settled in stock under provisions of the plan. In determining compensation cost, the Black-Scholes option-pricing model is used to estimate the fair value of SARs on date of grant. The current year per share average fair value and the model assumptions are shown in the table below.



Weighted per share average fair value at grant date		$12.54
Assumptions:
Dividend yield	1.6		%
Volatility	21.1		%
Risk-free interest rate	2.4		%
Expected term	7.0 years

A summary of SAR activity during the first nine months of 2017 is presented below.



(Dollars in thousands, except per share data)	Rights		Weighted Average Exercise Price	Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value
Outstanding at January 1, 2017	1,324,954		$34.53
Granted	165,592		57.53
Forfeited	(9,448	)	44.25
Expired	(837	)	36.48
Exercised	(317,621	)	30.86
Outstanding at September 30, 2017	1,162,640		$38.73	6.3 years	$	21,821