Compensation and Employee Benefit Plans [Text Block]

9 Months Ended

Sep. 30, 2017

Notes

Compensation and Employee Benefit Plans

Note 12.   Share-Based Compensation 

IHC has a share-based compensation plan. AMIC had a plan, which has now been terminated. 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 share-based compensation plans: (i) the exercise price of an option may not be less than the fair market value of an IHC share on the grant date and the terms of an option may not exceed 10 years from the grant date; and (ii) the exercise price of a SAR may not be less than the fair market value of an IHC share on the grant date and SAR terms may not exceed 10 years from the date of grant.

The fair value of an option award is estimated on the date of grant using the Black-Scholes option valuation model. In general, the vesting period for an option grant is 3years. Restricted share units are valued at the quoted market price of the shares at the date of grant and generally vest over 3years. Compensation costs for options and restricted share units are recognized over the stated vesting periods on a straight-line basis. The fair value of a SAR 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 the fair value of a SAR continue to be recognized as compensation expense in the period of the change until settlement. The Company accounts for forfeitures of share-based compensation awards in the period that they occur.

At September 30, 2017, there were 1,099,100 shares available for future stock-based compensation grants under IHC’s stock incentive plan. 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,
		2017		2016		2017		2016
IHC’s Share-based Compensation Plan:
Stock options	$	36	$	-	$	106	$	170
Restricted stock units		23		16		81		60
SARs		305		(57)		359		410
Share-based compensation expense, pre-tax		364		(41)		546		640
Tax benefits		145		16		218		255
Share-based compensation expense, net	$	219	$	(25)	$	328	$	385

Stock Options

The IHC’s stock option activity during 2017 was as follows:

	Shares	Weighted- Average
	Under Option	Exercise Price
December 31, 2016	697,180	$	11.75
Granted	34,000		22.20
Exercised	(38,800)		9.09
September 30, 2017	692,380	$	12.41

The weighted average grant date fair value of options granted during the period ended September 30, 2017 was $7.01. No options were granted in the comparable period of 2016. The assumptions set forth in the table below were used to value the stock options granted during the period indicated: 

	2017
Weighted-average risk-free interest rate	1.71%
Expected annual dividend rate per share	0.79%
Expected volatility factor of the Company's common stock	37.57%
Weighted-average expected term of options	4.5 years

In 2017, IHC received no cash from the exercise of stock options, as option exercises were net settled

in IHC shares. As part of the net-share settlements in 2017, cash outflows to satisfy employees’ income tax withholding obligations amounted to $303,000. Stock options exercised in 2017 had an aggregate intrinsic value of $621,000 and IHC realized $180,000 of tax benefits. In 2016, option agreements affecting 13 employees were modified to extend the expirations of their terms from 2017 to 2019 and, as a result, the Company recorded incremental compensation costs of $170,000. In 2016, IHC received $84,000 in cash from the exercise of stock options with an aggregate intrinsic value of $67,000 and realized $15,000 of tax benefits.

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

		September 30, 2017
		Outstanding		Exercisable
Number of options		692,380		501,380
Weighted average exercise price per share	$	12.41	$	9.39
Aggregate intrinsic value for all options (in thousands)	$	8,889	$	7,953
Weighted average contractual term remaining		1.9 years		1.0 years

At September 30, 2017, the total unrecognized compensation cost related to IHC’s non-vested stock options was $537,000 and it is expected to be recognized as compensation expense over a weighted average period of 2.3 years.

Restricted Stock

The following table summarizes restricted stock activity for the nine months ended September 30, 2017:

	No. of	Weighted-Average
	Non-vested	Grant-Date
	Shares	Fair Value
December 31, 2016	17,325	$	16.20
Vested	(4,950)		12.53
September 30, 2017	12,375	$	17.68

The total fair value of restricted stock units that vested during the first nine months of 2017 and 2016 was $94,000 and $120,000, respectively. IHC granted no restricted stock awards during the nine months ended September 30, 2017 and 2016.

At September 30, 2017, the total unrecognized compensation cost related to non-vested restricted stock unit awards was $153,000 which is expected to be recognized as compensation expense over a weighted average period of 1.8 years.

SARs

IHC had 30,800 and 71,500 of SAR awards outstanding at September 30, 2017 and December 31, 2016, respectively. In the first nine months of 2017, 40,700 SARs were exercised with an aggregate intrinsic value of $676,000. Included in Other Liabilities in the Company’s Condensed Consolidated Balance Sheets at September 30, 2017 and December 31, 2016 are liabilities of $559,000 and $876,000, respectively, pertaining to SARs.

AMIC received $262,000 in cash from the exercise of stock options with an intrinsic value of $212,000.