Note 19—Share‑Based Compensation

Compensation cost is recognized for stock options and restricted stock awards issued to employees. Compensation cost is measured as the fair value of these awards on their date of grant. A Black‑Scholes model is utilized to estimate the fair value of stock options, while the market price of the Company’s common stock at the date of grant is used as the fair value of restricted stock awards. Compensation cost is recognized over the required service period, generally defined as the vesting period for stock option awards and as the restriction period for restricted stock awards. For awards with graded vesting, compensation cost is recognized on a straight‑line basis over the requisite service period for the entire award.

The Company’s 1999, 2004, and 2012 stock incentive programs are long‑term retention programs intended to attract, retain, and provide incentives for key employees and non‑employee directors in the form of incentive and non‑qualified stock options and restricted stock.

Stock Options

With the exception of non‑qualified stock options granted to directors under the 1999, 2004, and 2012 plans, which in some cases may be exercised at any time prior to expiration and in some other cases may be exercised at intervals less than a year following the grant date, incentive stock options granted under the plans may not be exercised in whole or in part within a year following the date of the grant, as these incentive stock options become exercisable in 25% increments pro ratably over the four-year period following the grant date. The options are granted at an exercise price at least equal to the fair value of the common stock at the date of grant and expire ten years from the date of grant. No options were granted under the 1999 plan after January 2, 2004, and the 1999 plan is closed other than for any options still unexercised and outstanding. No options were granted under the 2004 plan after January 26, 2012, and the 2004 plan is closed other than for any options still unexercised and outstanding. The 2012 plan is the only plan from which new share‑based compensation grants may be issued. It is the Company’s policy to grant options out of the 1,684,000 shares registered under the 2012 plan, of which no more than 817,476 shares can be granted as restricted stock or restricted stock units.

Activity in the Company’s stock option plans is summarized in the following table. All information has been retroactively adjusted for stock dividends and stock splits.


	Year Ended December 31,
	2015			2014			2013
		Weighted			Weighted			Weighted
		Average			Average			Average
		Exercise			Exercise			Exercise
	Shares	Price		Shares	Price		Shares	Price
Outstanding at January 1	294,342	$	35.91	295,916	$	33.26	340,140	$	31.79
Granted	26,430		61.74	22,497		65.59	23,007		41.45
Exercised	(35,360)		31.51	(22,878)		31.06	(65,555)		28.75
Forfeited	—		—	(1,180)		31.97	(220)		27.22
Expired	(7)		31.72	(13)		27.22	(1,456)		22.17
Outstanding at December 31	285,405		38.85	294,342		35.91	295,916		33.26
Exercisable at December 31	227,130		34.48	239,417		33.17	233,566		32.66
Weighted-average fair value of options granted during the year		$	25.08		$	26.44		$	15.66

The aggregate intrinsic value of 285,405, 294,342, and 295,916 stock options outstanding at December 31, 2015, 2014, and 2013 was $9.4 million, $9.2 million, and $9.8 million, respectively. The aggregate intrinsic value of 227,130, 239,417, and 233,566 stock options exercisable at December 31, 2015, 2014, and 2013 was $8.5 million, $8.1 million, and $ 7.9 million, respectively. The aggregate intrinsic value of 35,360, 22,878, and 65,555 stock options exercised for the years ended December 31, 2015, 2014, and 2013 was $1.3 million, $724,000, and $1.8 million, respectively.

Information pertaining to options outstanding at December 31, 2015, is as follows:


					Options Outstanding				Options Exercisable
						Weighted					Weighted
						Average					Average
						Remaining		Weighted		Weighted	Remaining
Range of					Number	Contractual		Average	Number	Average	Contractual
Exercise Prices					Outstanding	Life		Exercise Price	Outstanding	Exercise Price	Life
$	26.01	-	$	30.00	33,313	3.3	years	27.49	33,313	27.49
$	30.01	-	$	35.00	121,000	3.6	years	31.78	114,855	31.78
$	35.01	-	$	40.00	57,659	2.1	years	38.20	57,655	38.20
$	40.01	-	$	45.00	24,507	6.9	years	41.42	13,824	41.40
$	45.01	-	$	69.48	48,926	8.6	years	63.51	7,483	65.52
					285,405	4.4	years	38.85	227,130	34.48	3.4	years

The fair value of options is estimated at the date of grant using the Black‑ Scholes option pricing model and expensed over the options’ vesting periods. The following weighted‑average assumptions were used in valuing options issued:


	Year ended December 31,
	2015		2014					2013
Dividend yield	1.40	%	1.27	%				1.70	%
Expected life	8.5	years	6	years				6	years
Expected volatility	40.9	%	43.8	%	-	44.7	%	45.7	%
Risk-free interest rate	1.79	%	2.10	%				1.02	%

As of December 31, 2015, there was $845,000 of total unrecognized compensation cost related to non‑vested stock option grants under the plans. The cost is expected to be recognized over a weighted‑average period of 1.07 year as of December 31, 2015. The total fair value of shares vested during the years ended December 31, 2015, 2014 and 2013 was approximately $386,000, $413,000 and $402,000, respectively. Compensation expense of $483,000, $394,000, and $419,000 was recorded in 2015, 2014, and 2013, respectively.

Restricted Stock

The Company from time‑to‑time also grants shares of restricted stock to key employees and non‑employee directors. These awards help align the interests of these employees and directors with the interests of the shareholders of the Company by providing economic value directly related to increases in the value of the Company’s stock. The value of the stock awarded is established as the fair market value of the stock at the time of the grant. The Company recognizes expense, equal to the total value of such awards, ratably over the vesting period of the stock grants. Grants to employees typically cliff vest after four years. Grants to non‑employee directors typically vest within a 12-month period.

All restricted stock agreements are conditioned upon continued employment. Termination of employment prior to a vesting date, as described below, would terminate any interest in non‑vested shares. Prior to vesting of the shares, as long as employed by the Company, the key employees and non‑employee directors will have the right to vote such shares and to receive dividends paid with respect to such shares. All restricted shares will fully vest in the event of change in control of the Company or upon the death of the recipient.

Non‑vested restricted stock for the year ended December 31, 2015 is summarized in the following table. All information has been retroactively adjusted for stock dividends and stock splits.


		Weighted-
		Average
		Grant-Date
Restricted Stock	Shares	Fair Value
Nonvested at January 1 2015	228,907	$	37.44
Granted	45,605		70.86
Vested	(54,730)		36.56
Forfeited	(1,500)		49.46
Nonvested at December 31, 2015	218,282		44.56

The Company granted 45,605, 28,014, and 83,760 shares for the years ended December 31, 2015, 2014, and 2013, respectively. The weighted‑average‑ grant‑date fair value of restricted shares granted in 2015, 2014, and 2013 was $70.86, $60.40, and $43.33, respectively. Compensation expense of $2.5 million, $2.3 million, and $2.2 million was recorded in 2015, 2014, and 2013, respectively.

The vesting schedule of these shares as of December 31, 2015 is as follows:


		Shares
2016		70,568
2017		54,892
2018		36,720
2019		32,067
2020		5,832
Thereafter		18,203
		218,282

As of December 31, 2015, there was $4.9 million of total unrecognized compensation cost related to non‑vested restricted stock granted under the plans. The cost is expected to be recognized over a weighted‑average period of 2.05 years as of December 31, 2015. The total fair value of shares vested during the years ended December 31, 2015, 2014 and 2013 was approximately $2.1 million, $1.2 million, and $759,000, respectively.

Restricted Stock Units

The Company from time‑to‑time also grants performance RSUs to key employees. These awards help align the interests of these employees with the interests of the shareholders of the Company by providing economic value directly related to the performance of the Company. Performance RSU grants contain a three year performance period. The Company communicates threshold, target, and maximum performance RSU awards and performance targets to the applicable key employees at the beginning of a performance period. Dividends are not paid in respect to the awards during the performance period. The value of the RSUs awarded is established as the fair market value of the stock at the time of the grant. The Company recognizes expenses on a straight‑line basis typically over three years based upon the probable performance target that will be met. For the year ended December 31, 2015, the Company accrued for 98.5% of the RSUs granted, based on Management’s expectations of performance.

Nonvested RSUs for the year ended December 31, 2015 is summarized in the following table.


		Weighted-
		Average
		Grant-Date
Restricted Stock Units	Shares	Fair Value
Nonvested at January 1, 2015	79,308	$	55.92
Granted	39,672		68.31
Vested	(38,218)		50.67
Forfeited	(973)		50.45
Nonvested at December 31, 2015	79,789		64.66

The Company granted 39,672, 37,802 and 43,820 shares for the year ended December 31, 2015, 2014 and 2013, respectively. The weighted‑average grant‑date fair value of restricted shares granted in 2015 was $68.31. Compensation expense of $2.8 million, $1.2 million, and $700,000 was recorded in 2015, 2014 and 2013, respectively.

As of December 31, 2015, there was $2.6 million of total unrecognized compensation cost related to nonvested RSUs granted under the plan. This cost is expected to be recognized over a weighted‑average period of 1.49 years as of December 31, 2015.

Employee Stock Purchase Plan

The Company has registered 363,825 shares of common stock in connection with the establishment of an Employee Stock Purchase Plan. The plan, which expires June 30, 2017, is available to all employees who have attained age 21 and completed six months of service. The Company currently has more than 116,000 shares available for issuances under the plan. The price at which common stock may be purchased for each quarterly option period is the lesser of 95% of the common stock’s fair value on either the first or last day of the quarter.

The 2002 Employee Stock Purchase Plan permits eligible employees to purchase Company stock at a discounted price. Beginning July 1, 2009, the 15% discount was reduced to 5%. The Company recognized $48,000, $44,000 and $41,000 in share‑based compensation expense for the years ended December 31, 2015, 2014 and 2013, respectively.