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Share-based Compensation

12 Months Ended

Dec. 31, 2019

8. 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 December 31, 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. The dividend yield is computed as the annualized dividend rate at the grant date divided by the strike price of the stock option. For the year ended December 31, 2019, the Company did not grant stock options. The weighted average input assumptions used for the years ended December 31, 2018 and 2017 were as follows:


	2018	2017

Expected term (in years)	6.4	6.0
Risk-free interest rate	2.64%	2.05%
Expected volatility	33.30%	38.33%
Dividend yield	2.87%	2.40%

The number of stock options and weighted-average exercise prices as of December 31, 2019 and 2018 are as follows:


	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	(42)		29.91
Forfeited	-		-	(8)		31.09
Outstanding at end of the period	97	$	52.53	107	$	49.26
Exercisable at end of the period	52	$	40.96	35	$	29.70

As of December 31, 2019, the weighted-average remaining contractual life was 7.11 years with an aggregate intrinsic value of $5.7 million for outstanding stock options and the weighted-average remaining contractual life was 6.34 years with an aggregate intrinsic value of $3.6 million for exercisable options. The unrecognized compensation expense calculated under the fair value method for shares expected to vest as of December 31, 2019 was $0.5 million and is expected to be recognized over a weighted average period of 2.63 years. The Company received $0.3 million and $0.5 million in cash proceeds from the exercise of stock options during the years ended December 31, 2019 and 2018, respectively. Upon exercising of options, the Company withheld shares for employee taxes of 1 thousand and 6 thousand for the years ended December 31, 2019 and 2018, respectively. The total intrinsic value of options exercised during the years ended December 31, 2019 and 2018 was $1.0 million and $4.1 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. A summary of outstanding restricted stock and award activity as of December 31, 2019 and 2018 are as follows:


	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	29		130.89	19		86.51
Vested	(37)		45.83	(91)		32.00
Forfeited	(3)		167.48	-		-
Outstanding at end of the period	46	$	98.28	57	$	50.55

The total fair value of restricted stock awards vested during the years ended December 31, 2019, 2018 and 2017 was $4.7 million, $8.6 million, and $6.8 million, respectively.

The total share-based compensation charged against income during the years ended December 31, 2019, 2018 and 2017 was $4.5 million, $3.1 million, and $4.3 million, respectively. The total costs of the options and restricted stock awards charged against income was $2.9 million, $2.2 million and $3.4 million during the years ended December 31, 2019, 2018 and 2017, respectively. Also included in the years ended December 31, 2019, 2018 and 2017 was $0.3 million, respectively, for 63,300 performance-based deferred shares in expense for certain key executives that became fully vested on December 31, 2019. Included for each of the years ended December 31, 2019, 2018 and 2017 was $0.6 million in expense for 210,000 performance-based contingent shares granted to our Chief Executive Officer (“CEO”) that became fully vested on December 31, 2019 based on the achievement of certain Company performance targets. Included for the year ended December 31, 2019 was $0.7 million for 17,780 performance-based contingent shares for certain other key executives granted in 2019.

The total income tax benefit recognized in the consolidated statements of income for restricted stock awards was $7.5 million, $2.5 million and $2.1 million for the years ended December 31, 2019, 2018 and 2017, respectively.

There was $2.7 million of total unrecognized compensation cost related to restricted stock awards as of December 31, 2019, which is expected to be recognized over a weighted-average period of 1.90 years. There was $1.6 million of unrecognized compensation cost related to the 17,780 performance-based shares discussed above as of December 31, 2019, which is expected to be recognized over 2.00 years.