Note 8. Share-based Compensation

6 Months Ended

Jun. 30, 2013

Notes

Note 8. Share-based Compensation

Note 8.                        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 was $370,000 and $147,000 for the three months ended June 30, 2013 and 2012, respectively, and was $491,000 and $617,000 for the six months ended June 30, 2013 and 2012, respectively. Related tax benefits of $148,000 and $59,000 were recognized for the three months ended June 30, 2013 and 2012, respectively, and $196,000 and $246,000 were recognized for the six months ended June 30, 2013 and 2012, 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 June 30, 2013, there were 350,170 shares available for future stock-based compensation grants under IHC’s stock incentive plans.

Stock Options

At June 30, 2013 and December 31, 2012, there were 693,836 options outstanding. In March 2013, 192,500 options outstanding were modified to extend the expiration term 5 years. The incremental cost of the modified awards was $618,000, which will be recognized over a new 2-year vesting period starting from the date of the modification. There was no other option activity during the six-month period ending June 30, 2013.

The following table summarizes information regarding outstanding and exercisable options as of June 30, 2013:

		Outstanding		Exercisable
Number of options		693,836		501,336
Weighted average exercise price per share	$	9.36	$	9.12
Aggregate intrinsic value for all options	$	1,711	$	1,359
Weighted average contractual term remaining		2.4 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.

Compensation expense of $77,000 and $60,000 was recognized in the three months ended June 30, 2013 and 2012, respectively, and $90,000 and $121,000 was recognized in the six months ended June 30, 2013 and 2012, respectively, for the portion of the grant-date fair value of stock options vesting during that period.

As of June 30, 2013, the total unrecognized compensation expense related to non-vested stock options was $528,000, which is expected to be recognized over the remaining requisite weighted-average service period of 1.71 years.

Restricted Stock

The following table summarizes restricted stock activity for the six months ended June 30, 2013:

	No. of	Weighted-Average
	Non-vested	Grant-Date
	Shares	Fair Value
December 31, 2012	13,200	$	9.37
Granted	7,425		11.66
Vested	(3,300)		8.64
June 30, 2013	17,325	$	10.49

IHC granted 7,425 shares of restricted stock awards during each of the six months ended June 30, 2013 and 2012 with a weighted average grant-date fair value of $11.66 and $9.39, respectively, per share. The total fair value of restricted stock that vested during each of the first six months of 2013 and 2012 was $37,000 and $16,000, respectively. Restricted stock expense was $14,000 and $9,000 for the three months ended June 30, 2013 and 2012, respectively, and was $27,000 and $18,000 for the six months ended June 30, 2013 and 2012, respectively.

As of June 30, 2013, the total unrecognized compensation expense related to non-vested restricted stock awards was $155,000 which is expected to be recognized over the remaining requisite weighted-average service period of 2.1 years.

SARs and Share-Based Performance Awards

IHC had 263,900 and 269,950 SAR awards outstanding at June 30, 2013 and December 31, 2012, respectively. No SARs awards were granted during the six months ended June 30, 2013. During the six months ended June 30, 2012, the Company granted 44,000 SAR awards. 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 three months ended June 30, 2013, and 2012, IHC recorded $279,000, and $58,000, respectively, of compensation costs for these awards. For six months ended June 30, 2013, and 2012, IHC recorded $378,000, and $451,000, respectively, of compensation costs for these awards. In the second quarter of 2013, 6,050 SARs were exercised with an aggregate intrinsic value of $19,000. No SARs were exercised during the six months ended June 30, 2012. Included in Other Liabilities in the Company’s Condensed Consolidated Balance Sheets at June 30, 2013 and December 31, 2012 are liabilities of $1,042,000 and $683,000, 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 June 30, 2013, and 2012, IHC recorded $0 and $18,000, respectively, of compensation costs for these awards, and for the six months ended June 30, 2013, and 2012, IHC recorded $(5,000) and $27,000, respectively.  The intrinsic value of share-based performance awards paid during the six months ended June 30, 2013 and 2012 was $83,000 and $57,000, respectively. Included in the other liabilities on the Company’s Condensed Consolidated Balance Sheets at June 30, 2013 and December 31, 2012 are liabilities of $10,000 and $97,000, respectively, pertaining to share-based performance awards.

B)        AMIC Share-Based Compensation Plans

Total AMIC share-based compensation expense was $9,000 and $8,000 the three months ended June 30, 2013 and 2012, respectively, and was $17,000 and $16,000 for the six months ended June 30, 2013 and 2012, respectively.  Related tax benefits of $3,000 were recognized for both the three months ended June 30, 2013 and 2012; and were $6,000 for both the six months ended June 30, 2013 and 2012.

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 six months ended June 30, 2013:

	Shares	Weighted- Average
	Under Option	Exercise Price
December 31, 2012	227,285	$	11.40
Granted	13,334		7.01
Expired	(18,334)		7.50
June 30, 2013	222,285	$	11.46

The following table summarizes information regarding AMIC’s outstanding and exercisable options as of June 30, 2013:

		Outstanding		Exercisable
Number of options		222,285		202,284
Weighted average exercise price per share	$	11.46	$	11.95
Aggregate intrinsic value for all options (in thousands)	$	62	$	53
Weighted average contractual term remaining		3.28 years		2.68 years

The fair value of an option award is estimated on the date of grant using the Black-Scholes option valuation model. The weighted average grant-date fair-value of options granted during the six months ended June 30, 2013 was $4.04 per share. No options were granted during the six months ended June 30, 2012. The assumptions set forth in the table below were used to value the stock options granted during the six months ended June 30, 2013:

	June 30,
	2013
Weighted-average risk-free interest rate	2.30%
Annual dividend rate per share	-
Weighted-average volatility factor of the Company's common stock	45.00%
Weighted-average expected term of options	5 years

Compensation expense of $9,000 and $8,000 was recognized for the three-month periods ended June 30, 2013 and 2012, respectively, and was $17,000 and $16,000 for the six-month periods ended June 30, 2013 and 2012, respectively, for the portion of the grant-date fair value of AMIC’s stock options vesting during the period.

As of June 30, 2013, the total unrecognized compensation expense related to AMIC’s non-vested options was $84,000 which will be recognized over the remaining requisite service periods.