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Share-based Compensation

9 Months Ended

Sep. 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 September 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 nine months ended September 30, 2019, the Company did not grant stock options. For the nine months ended September 30, 2018, the weighted average input assumptions used were as follows:


	2018
Expected term (in years)	6.4
Risk-free interest rate	2.64%
Expected volatility	33.30%
Dividend yield	2.87%

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


	Nine months ended September 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	(23)		28.87
Forfeited	-		-	(8)		31.09
Outstanding at end of the period	97	$	52.53	126	$	46.51
Exercisable at end of the period	52	$	40.96	54	$	30.21

As of September 30, 2019, the weighted-average remaining contractual life for outstanding stock options was 7.36 years with an aggregate intrinsic value of $5.1 million and the weighted-average remaining contractual life for exercisable stock options was 6.59 years with an aggregate intrinsic value of $3.3 million. For the nine months ended September 30, 2019, the Company did not grant stock options. The weighted-average grant date fair value of options granted during the nine months ended September 30, 2018 was $18.08. The unrecognized compensation expense calculated under the fair value method for stock options expected to vest as of September 30, 2019 was $0.6 million and is expected to be recognized over a weighted average period of 2.76 years. The Company received $279 thousand and $220 thousand in cash proceeds from the exercise of stock options during the nine months ended September 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 nine months ended September 30, 2019 and 2018, respectively. The total intrinsic value for stock options exercised during the nine months ended September 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:


	Nine months ended September 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	18		79.80
Vested	(32)		47.14	(86)		31.61
Forfeited	(2)		167.48	-		-
Outstanding at end of the period	51	$	91.98	61	$	46.90

The total fair value of restricted stock awards vested during the nine months ended September 30, 2019 and 2018 was $4.1 million and $7.5 million, respectively.

The total share-based compensation charged against income was $1.2 million and $717 thousand during the three months ended September 30, 2019 and 2018, respectively, and $3.4 million and $2.4 million during the nine months ended September 30, 2019 and 2018, respectively. The total costs of the options and restricted stock awards charged against income was $723 thousand and $488 thousand during the three months ended September 30, 2019 and 2018, respectively, and $2.2 million and $1.7 million during the nine months ended September 30, 2019 and 2018, respectively. Also included for the three months ended September 30, 2019 and 2018 was $77 thousand, respectively, and for the nine months ended September 30, 2019 and 2018 was $228 thousand and $229 thousand, respectively, for 63,300 performance-based deferred shares in expense for certain key executives. Included for the three and nine months ended September 30, 2019 and 2018, respectively, was $152 thousand and $455 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. Included for the three and nine months ended September 30, 2019 was $205 thousand and $497 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 $249 thousand and $167 thousand for the three months ended September 30, 2019 and 2018, respectively, and was $1.5 million and $1.6 million for the nine months ended September 30, 2019 and 2018, respectively.

There was $3.3 million of total unrecognized compensation cost related to restricted stock awards as of September 30, 2019, which is expected to be recognized over a weighted-average period of 2.01 years. There was $2.1 million of unrecognized compensation cost related to the 291,080 performance-based shares discussed above as of September 30, 2019, which is expected to be recognized over a weighted-average period of 2.15 years.