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Share-based Compensation

6 Months Ended

Jun. 30, 2019

4. SHARE-BASED COMPENSATION

Stock Options:

The Company has issued non-qualified and incentive stock options to employees and nonemployee directors. The fair value of these options are estimated on the date of grant using the Black-Scholes option pricing model, which requires estimates of the expected term of the option, the risk-free interest rate, the expected volatility of the price of the Company’s common stock, and dividend yield. Options outstanding as of June 30, 2019 generally vest over a period of three years and expire ten years from the date of grant. The exercise price of these options ranges from $26.52 to $171.68. Due to the Company’s lack of option exercise history, the expected term is calculated using the simplified method defined as the midpoint between the vesting period and the contractual term of each option. The risk free interest rate is based on the U.S. Treasury yield curve in effect on the date of grant that most closely corresponds to the expected term of the option. The expected volatility is based on the historical volatility of the Company’s common stock over the period of time equivalent to the expected term for each award. For the six months ended June 30, 2019, the Company did not grant stock options. For the six months ended June 30, 2018, the weighted average input assumptions used were as follows:


	2018
Expected term (in years)	6.4
Risk-free interest rate	2.62%
Expected volatility	33.30%
Dividend yield	2.87%

The following table is a summary of our stock option activity:


	Six months ended June 30,
	2019			2018
	Shares	Weighted-Average Exercise Price		Shares	Weighted-Average Exercise Price
(shares in thousands)
Outstanding at beginning of period	107	$	49.26	106	$	31.18
Granted	-		-	51		67.50
Exercised	(10)		28.21	(21)		28.87
Outstanding at end of the period	97	$	52.53	136	$	45.17
Exercisable at end of the period	52	$	40.96	60	$	29.94

As of June 30, 2019, the weighted-average remaining contractual life for outstanding stock options was 7.61 years with an aggregate intrinsic value of $7.5 million and the weighted-average remaining contractual life for exercisable stock options was 6.85 years with an aggregate intrinsic value of $4.6 million. For the six months ended June 30, 2019, the Company did not grant stock options. The weighted-average grant date fair value of options granted during the six months ended June 30, 2018 was $18.08. The unrecognized compensation expense calculated under the fair value method for stock options expected to vest as of June 30, 2019 was $0.7 million and is expected to be recognized over a weighted average period of 2.92 years. The Company received $279 thousand and $62 thousand in cash proceeds from the exercise of stock options during the six months ended June 30, 2019 and 2018, respectively. Upon exercising of stock options, the Company withheld shares of the Company’s common stock for employee taxes of 1 thousand and 3 thousand for the six months ended June 30, 2019 and 2018, respectively. The total intrinsic value for stock options exercised during the six months ended June 30, 2019 and 2018 was $1.0 million and $1.4 million, respectively.

Restricted Stock:

The Company has issued restricted stock to employees and nonemployee directors generally with vesting terms up to five years after the date of grant. The fair value of the restricted stock is equal to the market price of the Company’s common stock on the date of grant. Expense for restricted stock is amortized ratably over the vesting period. The following table summarizes our restricted stock activity:


	Six months ended June 30,
	2019			2018
	Shares	Weighted-Average Grant Date Fair Value		Shares	Weighted-Average Grant Date Fair Value
(shares in thousands)
Outstanding at beginning of period	57	$	50.55	129	$	32.15
Granted	28		130.89	17		70.67
Vested	(31)		45.30	(85)		31.59
Forfeited	(2)		167.48	-		-
Outstanding at end of the period	52	$	92.36	61	$	43.71

The total fair value of restricted stock awards vested during the six months ended June 30, 2019 and 2018 was $4.0 million and $7.4 million, respectively.

The total share-based compensation charged against income was $1.3 million and $830 thousand during the three months ended June 30, 2019 and 2018, respectively, and $2.2 million and $1.6 million during the six months ended June 30, 2019 and 2018, respectively. The total costs of the options and restricted stock awards charged against income was $791 thousand and $600 thousand during the three months ended June 30, 2019 and 2018, respectively, and $1.5 million and $1.2 million during the six months ended June 30, 2019 and 2018, respectively. Also included for the three and six months ended June 30, 2019 was $75 thousand and $151 thousand, respectively, for 63,300 performance-based deferred shares and for the three and six months ended June 30, 2018 was $79 thousand and $152 thousand, respectively, for 63,300 performance-based deferred shares in expense for certain key executives. Included for the three and six months ended June 30, 2019 was $151 thousand and $303 thousand, respectively, in expense for 210,000 performance-based contingent shares granted to our CEO that will vest based on the achievement of certain Company performance targets. For the three and six months ended June 30, 2018, costs charged against income was $151 thousand and $303 thousand, respectively. Included for the three months and six months ended June 30, 2019 was $202 thousand and $292 thousand, respectively, for 17,780 performance-based contingent shares for certain other key executives granted in 2019.

The total income tax benefit recognized in the Condensed Consolidated Statements of Income for restricted stock awards was $385 thousand and $546 thousand for the three months ended June 30, 2019 and 2018, respectively, and was $1.2 million and $1.5 million for the six months ended June 30, 2019 and 2018, respectively.

There was $3.9 million of total unrecognized compensation cost related to restricted stock awards as of June 30, 2019, which is expected to be recognized over a weighted-average period of 2.15 years. There was $2.5 million of unrecognized compensation cost related to the 291,080 performance-based contingent shares discussed above as of June 30, 2019, which is expected to be recognized over a weighted-average period of 2.25 years.