Compensation and Employee Benefit Plans [Text Block]

9 Months Ended

Sep. 30, 2018

Notes

Compensation and Employee Benefit Plans

Note 11.Share-Based Compensation 

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 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 September 30, 2018, there were 846,300 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,
		2018		2017		2018		2017
IHC’s Share-based Compensation Plan:
Stock options	$	189	$	36	$	558	$	106
Restricted stock units		39		23		129		81
SARs		93		305		218		359
Share-based compensation expense, pre-tax		321		364		905		546
Tax benefits		86		145		281		218
Share-based compensation expense, net	$	235	$	219	$	624	$	328

Stock Options

The IHC’s stock option activity during 2018 was as follows:

	Shares	Weighted- Average
	Under Option	Exercise Price
December 31, 2017	692,380	$	16.62
Granted	13,000		31.30
Exercised	(36,433)		9.79
September 30, 2018	668,947	$	17.28

 

	2018	2017
Weighted-average risk-free interest rate	2.64%	1.71%
Expected annual dividend rate per share	0.95%	0.79%
Expected volatility factor of the Company's common stock	35.80%	37.57%
Weighted-average expected term of options	4.5 years	4.5 years

In 2018, IHC received $357,000 in cash from the exercise of stock options with an aggregate intrinsic value of $886,000 and recognized $165,000 of tax benefits. 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.

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

		September 30, 2018
		Outstanding		Exercisable
Number of options		668,947		363,612
Weighted average exercise price per share	$	17.28	$	10.99
Aggregate intrinsic value for all options (in thousands)	$	12,458	$	9,057
Weighted average contractual term remaining		2.2 years		0.8 years

At September 30, 2018, the total unrecognized compensation cost related to IHC’s non-vested stock options was $1,473,000 and it is expected to be recognized as compensation expense over a weighted average period of 1.7 years.

Restricted Stock

The following table summarized restricted stock activity for the nine months ended September 30, 2018: 

	No. Of	Weighted-Average
	Non-vested	Grant-Date
	Shares	Fair Value
December 31, 2017	18,975	$	22.91
Vested	(2,475)		11.78
September 30, 2018	16,500	$	24.58

At September 30, 2018, the total unrecognized compensation cost related to non-vested restricted stock

unit awards was $269,000 and is expected to be recognized as compensation expense over a weighted average period of 1.7 years.

SARs

IHC had 64,900 SAR awards outstanding at both September 30, 2018 and December 31, 2017 with corresponding liabilities of $240,000 and $22,000 for those periods, respectively, that are included in Other Liabilities in the Company’s Condensed Consolidated Balance Sheets.