Share-Based Compensation

In February 2015, the Company adopted the 2015 Incentive Award Plan (the "2015 Plan"), replacing the 2005 Equity Incentive Plan (the "2005 Plan") which expired in January 2015. The 2015 Plan was approved at the Company's Annual Meeting of Shareholders in May 2015. A maximum of 4,900,000 shares of common stock under the 2015 Plan are authorized for issuance upon exercise of stock options, stock appreciation rights and other awards, or upon vesting of restricted or deferred stock awards. As of December 31, 2016, only stock options and restricted stock unit awards have been granted under these plans.



	Year Ended December 31,
	2016		2015		2014
	(Amounts in thousands)
Cash received from stock option exercises	$	1,505	$	2,111	$	6,247
Compensation cost, all share-based awards	142		5,208		4,112
Excess tax benefit, all share-based awards	913		27		148

Stock Option Awards

Beginning January 1, 2008, stock options granted, for which the Company has recognized share-based compensation expense, become exercisable at a rate of 25% per year beginning one year from the date granted, are granted at the closing price of the Company's stock on the date of grant, and expire after 10 years. Prior to January 1, 2008, stock options granted became exercisable at a rate of 20% per year.

No stock options were awarded in 2016, 2015, and 2014 under the 2015 Plan or 2005 Plan. The fair values of stock options awarded in 2013 under the 2005 Plan were estimated on the dates of grant using a closed-form option valuation model (Black-Scholes). The following table provides the assumptions used in the calculation of grant-date fair values of stock options awarded during 2013 based on the Black-Scholes option pricing model:



	2013
Weighted-average grant-date fair value	$7.11
Expected volatility	33.16% - 33.18%
Weighted-average expected volatility	33.17%
Risk-free interest rate	0.88% - 1.60%
Expected dividend yield	5.40% - 5.76%
Expected term in months	72

Expected volatilities are based on historical volatility of the Company’s stock over the term of the stock options. The Company estimated the expected term of stock options, which represents the period of time that stock options granted are expected to be outstanding, by using historical exercise patterns and post-vesting termination behavior. The risk free interest rate is determined based on U.S. Treasury yields with equivalent remaining terms in effect at the time of the grant.

The following table presents a summary of the stock option activity under the Company’s plans for the year ended December 31, 2016:



	Shares	Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value (in 000’s)
Outstanding at January 1, 2016	168,000	$	48.14
Granted	—	—
Exercised	(62,500)	$	46.12
Canceled or expired	(20,000)	$	57.10
Outstanding at December 31, 2016	85,500	$	47.52	3.1	$	1,085
Exercisable at December 31, 2016	65,500	$	48.73	2.1	$	752

The aggregate intrinsic values in the table above represent the total pre-tax intrinsic value (the difference between the Company’s closing stock price and the stock option exercise price, multiplied by the number of in-the-money stock options) that would have been received by the stock option holders had all stock options been exercised on December 31, 2016. The aggregate intrinsic values of stock options exercised were $591,000, $303,000, and $1,160,000 during 2016, 2015, and 2014, respectively. The total fair value of stock options vested during each of 2016, 2015, and 2014 was $142,000.

The following table presents information regarding stock options outstanding at December 31, 2016:



	Options Outstanding				Options Exercisable
Range of Exercise Prices	Number of Options	Weighted-Average Remaining Contractual Life (Years)	Weighted- Average Exercise Price		Number of Options	Weighted- Average Exercise Price
$33.61-$45.30	41,000	5.7	$	42.44	21,000	$	41.40
$47.61-$50.35	15,000	1.3	$	48.52	15,000	$	48.52
$51.51-$54.93	29,500	0.4	$	54.06	29,500	$	54.06

As of December 31, 2016, $60,000 of total unrecognized compensation cost related to non-vested stock options is expected to be recognized over a weighted-average remaining contractual life of 0.5.

Restricted Stock Unit Awards

Under the 2015 Plan and 2005 Plan, the Compensation Committee of the Company’s Board of Directors granted performance-based vesting restricted stock unit awards to the Company’s senior management and key employees.

The following table presents the restricted stock unit grants summary at December 31, 2016:



	Grant Year
	2016	2015	2014
Three-year performance period ending December 31,	2018	2017	2016
Vesting shares, target (net of forfeited)	93,250	95,750	82,000
Vesting shares, maximum (net of forfeited)	174,844	179,531	153,750

The following table presents a summary of restricted stock unit awards activity during the years indicated:



	Year Ended December 31,
	2016				2015			2014
	Shares		Weighted- Average Fair Value per Share		Shares	Weighted- Average Fair Value per Share		Shares	Weighted- Average Fair Value per Share
Outstanding at January 1	263,250		$	45.94	167,000	$	41.15	170,500	$	39.64
Granted	95,750		$	53.49	100,250	$	53.80	93,500	$	45.17
Vested	(78,500	)	$	36.82	—	—		—	—
Forfeited/Canceled	(9,500)		$	50.46	(4,000)	$	43.10	(16,500)	$	43.99
Expired	—		—		—	—		(80,500)	$	44.01
Outstanding at December 31	271,000		$	51.09	263,250	$	45.94	167,000	$	41.15

The restricted stock units vest at the end of a three-year performance period beginning with the year of the grant, and then only if, and to the extent that, the Company’s performance during the performance period achieves the threshold established by the Compensation Committee of the Company’s Board of Directors. For 2014, 2015 and 2016 grants, vesting is based on the Company’s cumulative underwriting income, annual underwriting income, and net earned premium growth. As of December 31, 2016, 2,500, 3,500, and 3,500 target restricted stock units granted in 2016, 2015 and 2014, respectively, have been forfeited because the recipients were no longer employed by the Company. Expired shares represent shares that did not meet the vesting requirements.

The fair value of each restricted stock unit grant was determined based on the closing price of the Company's common stock on the grant date for awards classified as equity and on each reporting date for awards classified as a liability. Compensation cost is recognized based on management’s best estimate that performance goals will be achieved. If such goals are not met, no compensation cost will be recognized and any recognized compensation cost would be reversed.

In February 2016, 88,074 shares of common stock, net of 58,822 shares withheld for payroll taxes, were issued upon the vesting of 146,896 RSUs awarded in 2013 resulting from the attainment of performance goals above the target threshold during the three-year performance period from 2013 to 2015.

At December 31, 2016, the Company determined that it is probable that the Company's Board of Directors will modify the payment method for the vested 2014 grant awards and pay for the vested awards in cash in lieu of shares of the Company's common stock. As a result, the 2014 grants were reclassified from equity to liability awards at December 31, 2016. $3.4 million of the amount previously recognized in additional paid-in capital for the 2014 grant awards was reclassified to other liabilities in the consolidated balance sheets at December 31, 2016.