Note 10. Share-based Compensation

9 Months Ended

Sep. 30, 2014

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

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 are generally five years; and vesting periods are generally three years. The fair value of an option award is estimated on the date of grant using the Black-Scholes option valuation model. In addition to stock options, the Company has also granted restricted stock units, share appreciation rights (“SARs”) and share-based performance awards under the plans. Restricted share units are valued at the quoted market price of the shares at the date of grant and have a three year vesting period. Compensation costs for options and restricted share units are recognized over the stated vesting periods on a straight-line basis. 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. 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.

At September 30, 2014, there were 377,286 shares available for future stock-based compensation grants under IHC’s stock incentive plans. The following table summarizes share-based compensation expense, which is included in selling, general and administrative expenses on the Condensed Consolidated Statements of Income, applicable to the IHC plans  by award type for each of the periods indicated (in thousands):

		Three Months Ended				Nine Months Ended
		September 30,				September 30,
		2014		2013		2014		2013
IHC’s Share-based Compensation Plan:
Stock options	$	66	$	53	$	603	$	143
Restricted stock units		22		20		64		47
SARs		(190)		363		(113)		741
Performance awards		-		-		-		(5)
Share-based compensation expense, pre-tax		(102)		436		554		926
Tax benefits		(41)		174		221		369
Share-based compensation expense, net	$	(61)	$	262	$	333	$	557

Stock Options

The Company’s stock option activity during 2014 was as follows:

	Shares	Weighted- Average
	Under Option	Exercise Price
December 31, 2013	616,858	$	9.35
Expired	(2,178)		14.75
September 30, 2014	614,680	$	9.33

In May 2014, option agreements affecting 15 employees were modified to extend the expirations of their terms from 2015 to 2017 and as a result, the Company recorded incremental compensation costs of $405,000.

The following table summarizes information regarding outstanding and exercisable options:

		September 30, 2014
		Outstanding		Exercisable
Number of options		614,680		532,180
Weighted average exercise price per share	$	9.33	$	9.23
Aggregate intrinsic value for all options (in thousands)	$	2,469	$	2,192
Weighted average contractual term remaining		2.6 years		2.4 years

As of September 30, 2014, the total unrecognized compensation expense related to non-vested stock options was $121,000, which is expected to be recognized over the remaining requisite weighted-average service period of .5 years.

Restricted Stock

The following table summarizes restricted stock activity for the nine months ended September 30, 2014:

	No. of	Weighted-Average
	Non-vested	Grant-Date
	Shares	Fair Value
December 31, 2013	14,850	$	10.60
Granted	7,425		13.27
Vested	(7,425)		10.30
September 30, 2014	14,850	$	12.09

IHC granted 7,425 shares of restricted stock awards during each of the nine months ended September 30, 2014 and 2013 with weighted average grant-date fair values of $13.27 and $11.66, respectively, per share. The total fair value of restricted stock that vested during each of the first nine months of 2014 and 2013 was $103,000 and $69,000, respectively.

As of September 30, 2014, the total unrecognized compensation expense related to non-vested restricted stock unit awards was $152,000 which is expected to be recognized over the remaining requisite weighted-average service period of 2.0 years.

SARs

IHC had 247,950 and 251,800 of SAR awards outstanding at September 30, 2014 and December 31, 2013, respectively. Included in Other Liabilities in the Company’s Condensed Consolidated Balance Sheets at September 30, 2014 and December 31, 2013 are liabilities of $1,189,000 and $1,307,000, respectively, pertaining to SARs.

B)        AMIC Share-Based Compensation Plans

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.  The Company 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.

The following table summarizes share-based compensation expense, which is included in selling, general and administrative expenses on the Condensed Consolidated Statements of Income, applicable to the AMIC share-based compensation plans, by award type for each of the periods indicated (in thousands):

		Three Months Ended				Nine Months Ended
		September 30,				September 30,
		2014		2013		2014		2013
AMIC’s Share-based Compensation Plans:
Stock options	$	13	$	13	$	40	$	30
Share-based compensation expense, pre-tax		13		13		40		30
Tax benefits		4		4		14		10
Share-based compensation expense, net	$	9	$	9	$	26	$	20

Stock Options

AMIC’s stock option activity for the nine months ended September 30, 2014 is as follows:

	Shares	Weighted- Average
	Under Option	Exercise Price
December 31, 2013	222,285	$	11.46
Granted	13,334		10.80
Exercised	(6,667)		4.87
Expired	(62,336)		14.58
September 30, 2014	166,616	$	10.50

The following table summarizes information regarding AMIC’s outstanding and exercisable options as of September 30, 2014:

		September 30, 2014
		Outstanding		Exercisable
Number of options		166,616		144,393
Weighted average exercise price per share	$	10.50	$	10.69
Aggregate intrinsic value for all options (in thousands)	$	266	$	227
Weighted average contractual term remaining		3.44 years		2.54 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 nine months ended September 30, 2014 and 2013 was $5.70 and $4.04 per share, respectfully.  The assumptions set forth in the table below were used to value the stock options granted during the nine months ended September 30, 2014 and 2013:

	September 30,
	2014	2013
Weighted-average risk-free interest rate	2.72%	2.30%
Annual dividend rate per share	-	-
Weighted-average volatility factor of the Company's common stock	38.27%	45.00%
Weighted-average expected term of options	5 years	5 years

As of September 30, 2014, the total unrecognized compensation expense related to AMIC’s non-vested options was $95,000 which will be recognized over the remaining requisite service periods.