Note 10. Share-based Compensation

9 Months Ended

Sep. 30, 2012

Notes

Note 10. Share-based Compensation

Note 10.          Share-Based Compensation

IHC and AMIC each have share-based compensation plans. The following is a summary of the activity pertaining to each of these plans.

A)  IHC Share-Based Compensation Plans

Total share-based compensation expense was $153,000 and $34,000 for the three months ended September 30, 2012 and 2011, respectively, and was $770,000 and $361,000 for the nine months ended September 30, 2012 and 2011, respectively. Related tax benefits of $61,000 and $14,000 were recognized for the three months ended September 30, 2012 and 2011, respectively and $307,000 and $144,000 were recognized for the nine months ended September 30, 2012 and 2011, respectively.

Under the terms of IHC’s stock-based compensation plans, option exercise prices are more than or equal to the quoted market price of the shares at the date of grant; option terms range from five to ten years; and vesting periods are three years for employee options.  The Company may also grant shares of restricted stock, share appreciation rights (“SARs”) and share-based performance awards. Restricted shares are valued at the quoted market price of the shares at the date of grant and have a three year vesting period. Exercise prices of SARs are more than or equal to the quoted market price of IHC shares at the date of the grant and have three year vesting periods.

At September 30, 2012, there were 379,819 shares available for future stock-based compensation grants under IHC’s stock incentive plans.

Stock Options

The Company’s stock option activity for the nine months ended September 30, 2012 is as follows:

	Shares	Weighted- Average
	Under Option	Exercise Price
December 31, 2011	758,714	$	9.71
Forfeited	(3,667)	9.09
Expired	(26,378)	18.91
September 30, 2012	728,669	$	9.38

The following table summarizes information regarding outstanding and exercisable options:

		September 30, 2012
		Outstanding		Exercisable
Number of options		728,669		563,009
Weighted average exercise price per share	$	9.38	$	9.47
Aggregate intrinsic value for all options	$	511	$	349
Weighted average contractual term remaining		1.7 years		1.5 years

The fair value of an option award is estimated on the date of grant using the Black-Scholes option valuation model. No options were granted during the nine months ended September 30, 2012 or 2011.

Compensation expense of $56,000 and $61,000 was recognized in the three months ended September 30, 2012 and 2011, respectively, and $177,000 and $231,000 was recognized in the nine months ended September 30, 2012 and 2011, respectively, for the portion of the grant-date fair value of stock options vesting during that period.

No options were exercised during the three months and nine months ended September 30, 2012 or 2011.

As of September 30, 2012, the total unrecognized compensation expense related to non-vested stock options was $60,000 which is expected to be recognized over the remaining requisite weighted-average service period of 0.5 years.

Restricted Stock

IHC granted 7,425 and 6,750 shares of restricted stock awards during the nine months ended September 30, 2012  and 2011, respectively, with weighted average grant-date fair values of $9.39 and $9.84 per share, respectively. The total fair value of restricted stock that vested during each of the first nine months of 2012 and 2011 was $40,000 and $23,000, respectively. Restricted stock expense was $13,000 and $9,000 for the three months ended September 30, 2012 and 2011, respectively, and was $31,000 and $18,000 for the nine months ended September 30, 2012 and 2011, respectively.

The following table summarizes restricted stock activity for the nine months ended September 30, 2012:

	No. of	Weighted-Average
	Non-vested	Grant-Date
	Shares	Fair Value
December 31, 2011	9,900	$	8.95
Granted	7,425		9.39
Vested	(4,125)		8.40
September 30, 2012	13,200	$	9.37

As of September 30, 2012, the total unrecognized compensation expense related to non-vested restricted stock awards was $109,000 which is expected to be recognized over the remaining requisite weighted-average service period of 2.2 years.

SARs and Share-Based Performance Awards

IHC had 274,450 and 230,450 SAR awards outstanding at September 30, 2012 and December 31, 2011, respectively. During the first nine months of 2012 and 2011, the Company granted 44,000 SAR awards and 103,950 SAR awards, respectively. The fair value of SARs is calculated using the Black-Scholes valuation model at the grant date and each subsequent reporting period until settlement. Compensation cost is based on the proportionate amount of the requisite service that has been rendered to date. Once fully vested, changes in fair value of the SARs continue to be recognized as compensation expense in the period of the change until settlement. For the three months ended September 30, 2012 and 2011, IHC recorded $60,000 and $(43,000), respectively, of compensation costs for these awards, and for the nine months ended September 30, 2012 and 2011, recorded $511,000 and $82,000, respectively.  No SARs were exercised during the nine months ended September 30, 2012 or 2011. Included in Other Liabilities in the Company’s Condensed Consolidated Balance Sheets at September 30, 2012 and December 31, 2011 are liabilities of $799,000 and $288,000, respectively, pertaining to SARs.

 Other outstanding awards include share-based performance awards. Compensation costs for these awards are recognized and accrued as performance conditions are met, based on the current share price. For the three months ended September 30, 2012 and 2011, IHC recorded $24,000 and $8,000, respectively, of compensation costs for these awards, and for the nine months ended September 30, 2012 and 2011, recorded $51,000 and $29,000.  The intrinsic value of share-based performance awards paid during the nine months ended September 30, 2012 and 2011 was $57,000 and $53,000, respectively. Included in the other liabilities on the Company’s Condensed Consolidated Balance Sheets at September 30, 2012 and December 31, 2011 are liabilities of $59,000 and $65,000, respectively, pertaining to share-based performance awards.

B)        AMIC Share-Based Compensation Plans

Total AMIC share-based compensation expense was $8,000 and $9,000 for the three months ended September 30, 2012 and 2011, respectively and was $24,000 and $34,000 for the nine months ended September 30, 2012 and 2011, respectively .  Related tax benefits of $3,000 and $3,000 were recognized for the three months ended September 30, 2012 and 2011, respectively and were $9,000 and $12,000 for the nine months ended September 30, 2012 and 2011, respectively.

Under the terms of the AMIC’s stock-based compensation plan, option exercise prices are equal to the quoted market price of the shares at the date of grant; option terms are ten years; and vesting periods range from three to four years.  AMIC may also grant shares of restricted stock, stock appreciation rights and share-based performance awards.  Restricted shares are valued at the quoted market price of the shares at the date of grant, and have a three year vesting period.

Stock Options

The following table summarizes information regarding AMIC’s outstanding and exercisable options for the nine months ended September 30, 2012:

	Shares	Weighted- Average
	Under Option	Exercise Price
December 31, 2011	333,956	$	10.43
Forfeited	(16,668)		11.10
September 30, 2012	317,288	$	10.40

The following table summarizes information regarding AMIC’s outstanding and exercisable options:

		September 30, 2012
		Outstanding		Exercisable
Number of options		317,288		299,509
Weighted average exercise price per share	$	10.40	$	10.70
Aggregate intrinsic value for all options	$	4	$	2
Weighted average contractual term remaining		2.43 years		2.08 years

The fair value of an option award is estimated on the date of grant using the Black-Scholes option valuation model. No options were granted during the nine months ended September 30, 2012. The weighted average grant-date fair value of options granted during the nine months ended September 30, 2011 was $3.02 per share. The assumptions set forth in the table below were used to value the stock options granted during the nine months ended September 30, 2011:

		2011
Weighted-average risk-free interest rate		3.11%
Annual dividend rate per share	$	-
Weighted-average volatility factor of the Company's common stock		36.89
Weighted-average expected term of options		5 years

Compensation expense of $8,000 and $9,000 was recognized for the three months ended September 30, 2012 and 2011, respectively, and was $24,000 and $27,000 for the nine months ended September 30, 2012 and 2011, respectively, for the portion of the grant-date fair value of AMIC’s stock options vesting during those periods.

No options were exercised during the nine months ended September 30, 2012. AMIC received cash proceeds of $57,000 upon the exercise of 13,611 options with an intrinsic value of $11,000 during the nine months ended September 30, 2011.

As of September 30, 2012, the total unrecognized compensation expense related to AMIC’s non-vested options was $56,000 which will be recognized over the remaining requisite service periods.

Restricted Stock

AMIC issued 12,000 restricted stock awards in the second quarter of 2008, with a weighted average grant-date fair value of $6.92 per share.  No restricted stock awards have been issued since then. AMIC had no unvested restricted stock awards outstanding at September 30, 2012 and December 31, 2011. Restricted stock expense for the three months and nine months ended September 30, 2011 was $0 and $7,000, respectively.