Compensation and Employee Benefit Plans [Text Block]

12 Months Ended

Dec. 31, 2017

Notes

Compensation and Employee Benefit Plans

Note 14.Share-Based Compensation  

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

(A)IHC Share-Based Compensation Plan 

In November 2016, the stockholders approved the Independence Holding Company 2016 Stock Incentive Plan (the “2016 Plan"). The 2016 Plan permits grants of options, SARs, restricted shares, restricted share units, unrestricted shares, deferred share units and performance awards. Under the terms of the 2016 Plan: (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 3

years. Restricted share units are valued at the quoted market price of the shares at the date of grant and generally vest over 3 years. 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 December 31, 2017, there were 859,300 shares available for future stock-based compensation grants under the 2016 Plan. The following table summarizes share-based compensation expense, which is included in selling, general and administrative expenses on the Consolidated Statements of Income, applicable to the IHC plans  (by award type) for each of the years indicated (in thousands):

		2017		2016		2015
IHC’s Share-based Compensation Plan:
Stock options	$	224	$	181	$	55
Restricted stock units		116		83		89
SARs		454		435		13
Share-based compensation expense, pre-tax		794		699		157
Tax benefits		316		279		63
Share-based compensation expense, net	$	478	$	420	$	94

Stock Options

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

	Shares	Weighted- Average
	Under Option	Exercise Price
December 31, 2016	697,180	$	11.75
Granted	199,000		26.72
Exercised	(203,800)		9.82
December 31, 2017	692,380	$	16.62

The weighted average grant-date fair-values of options granted during the years ended December 31, 2017 and 2016 were $8.66 and $2.65, respectively. No options were granted in 2015. The assumptions set forth in the table below were used to value the stock options granted during the periods indicated:

	2017	2016
Weighted-average risk-free interest rate	2.02%	1.87%
Expected annual dividend rate per share	0.58%	0.60%
Expected volatility factor of the Company's common stock	37.44%	12.95%
Weighted-average expected term of options	4.5 years	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 $1,659,000. Stock options exercised in 2017 had an aggregate intrinsic value of $3,535,000 and IHC realized $834,000 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 $399,000 in cash from the exercise of stock options with an aggregate intrinsic value of $416,000 and realized $104,000 of tax benefits. In 2015, IHC received $278,000 in cash from the exercise of stock options with an aggregate intrinsic value of $132,000 and realized $22,000 of tax benefits.

The following table summarizes information regarding options outstanding and exercisable:

		December 31, 2017
		Outstanding		Exercisable
Number of options		692,380		388,713
Weighted average exercise price per share	$	16.62	$	10.55
Aggregate intrinsic value for all options (in thousands)	$	7,499	$	6,568
Weighted average contractual term remaining		2.8 years		1.4 years

At December 31, 2017, the total unrecognized compensation cost related to IHC’s non-vested stock options was $1,904,000 and it is expected to be recognized as compensation expense over a weighted average period of 2.4 years.

Restricted Stock

The following table summarizes IHC’s restricted stock activity for the year ended December 31, 2016:

	No. of	Weighted-Average
	Non-vested	Grant-Date
	Shares	Fair Value
December 31, 2016	17,325	$	16.20
Granted	9,900		28.20
Vested	(8,250)		15.18
December 31, 2017	18,975	$	22.91

IHC granted 9,900, 9,900 and 7,425 of restricted stock units during each of the years ended December 31, 2017, 2016 and 2015, respectively, with weighted-average grant-date fair values of $28.20, $19.15 and $11.78 per share, respectively. The total fair value of restricted stock units that vested in 2017, 2016 and 2015 was $187,000, $120,000 and $89,000, respectively.

At December 31, 2017, the total unrecognized compensation cost related to non-vested restricted stock unit awards was $398,000 which is expected to be recognized as compensation expense over a weighted average period of 2.2 years.

SARs and Share-Based Performance Awards

IHC had 64,900 and 71,500 SAR awards outstanding at December 31, 2017 and 2016, respectively. In 2017, 64,900 shares were granted; and 71,500 shares were exercised with an aggregate intrinsic value of $1,309,000. In 2016, 54,350 SARs were exercised with an aggregate intrinsic value of $449,000. In 2015, 11,000 SARs were exercised with an aggregate intrinsic value of $61,000. Included in Other Liabilities in the Company’s Consolidated Balance Sheets at December 31, 2017 and December 31, 2016 are liabilities of $22,000 and $876,000, respectively, pertaining to SARs.

(B)AMIC Share-Based Compensation Plans 

As a result of a short-form merger discussed in Note 1 (B), AMIC’s 2009 Stock Incentive Plan (“AMIC 2009 Plan”) was terminated in 2016. Under the terms of the AMIC 2009 Plan, prior to its termination, option exercise prices were equal to the quoted market price of the shares at the date of grant; option terms were a maximum of ten years; and vesting periods generally ranged from three to four years. The fair value of an option award was estimated on the date of grant using the Black-Scholes option valuation model.

For the years ended December 31, 2016 and 2015, AMIC recorded $14,000 and $28,000 of share-based compensation expense, respectively, net of tax benefits of $7,000, and $15,000, respectively.

In 2016, AMIC received $262,000 in cash from the exercise of stock options with an aggregate intrinsic value of $212,000. In connection with the short-form merger transaction discussed in Note 1 (B), option agreements affecting 7 employees and directors were cancelled and as a result, the Company recorded incremental compensation costs of $646,000. These costs were accounted for as part of the equity transaction to take AMIC private. In 2015, AMIC received $52,000 in cash from the exercise of stock options with an aggregate intrinsic value of $37,000.