Share-Based Payments

12 Months Ended

Dec. 31, 2022

Share-Based Payment Arrangement [Abstract]

Employee Stock Purchase Plan

The 1999 Employee Stock Purchase Plan authorizes the issuance of 1,400,000 common shares, allowing eligible employees to purchase our common shares through payroll withholding at a discount of up to 15% off the market price at the end of each six-month purchase period. Employee withholding amounts may not be less than $10 or more than $2,000 per month, subject to certain limitations, as described in the plan. A plan participant may cease making payroll deductions at any time. A participant may not purchase more than 2,000 shares in a given six month purchase period under the plan and may not purchase more than $25,000 (fair market value) of common shares under the plan and all other purchase plans (if any) in a calendar year. A participant may withdraw from the plan at any time and elect to receive the balance of their contributions to the plan that have not yet been used to purchase shares in cash. Shares purchased under the plan are automatically enrolled in the Company's dividend reinvestment plan. Shares purchased under the plan may not be assigned, transferred, pledged, or otherwise disposed, except for certain situations allowed by the plan, such as upon death, for a period of 18 months after purchase. At our discretion, shares purchased under the plan can be either new issue shares or shares purchased in the open market. The plan shall automatically terminate when all of the shares authorized under the plan have been issued.

We recognize the 15% discount to the fair market value of the purchased shares as stock-based compensation expense, which amounted to $0.3 million, $0.2 million and $0.2 million for the years ended December 31, 2022, 2021, and 2020. For the years ended December 31, 2022, 2021, and 2020 the amount of shares issued under the plan amounted to 26,420, 27,975 and 31,661 shares. As of December 31, 2022, there were 263,706 shares available for purchase under the plan.

Share-Based Compensation Plan

The 2014 Stock Incentive Plan, which was approved by our shareholders in April 2014, authorizes the issuance of 1,900,000 common shares for the granting of stock options, stock appreciation rights, restricted stock, restricted stock units, performance awards and other stock and stock-based awards. As of December 31, 2022, 587,211 shares were available for issuance under the plan. The plan terminates on December 31, 2023.

We grant restricted stock awards to our employees and members of our Board of Directors and stock performance awards to our executive officers and certain other key employees as part of our long-term compensation and retention program. Stock-based compensation cost, recognized within operating expenses in the consolidated statements of income, amounted to $6.6 million, $6.7 million and $6.1 million for the years ended December 31, 2022, 2021 and 2020. The related income tax benefit recognized for these periods amounted to $1.7 million, $1.8 million and $2.1 million.

Restricted Stock Awards. Restricted stock awards are granted to executive officers and other key employees and members of the Company's Board of Directors. The awards vest, depending on award recipient, either ratably over a period of three to four years or cliff vest after four years. Vesting is accelerated in certain circumstances, including upon retirement. Awards granted to members of the Board of Directors are issued and

outstanding upon grant and carry the same voting and dividend rights of unrestricted outstanding common stock. Awards granted to executive officers and other key employees are eligible to receive dividend equivalent payments during the vesting period, subject to forfeiture under the terms of the agreement, but such awards are not issued or outstanding upon grant and do not provide for voting rights.

The grant-date fair value of each restricted stock award is determined based on the market price of the Company's common stock on the date of grant adjusted to exclude the value of dividends for those awards that do not receive dividend or dividend equivalent payments during the vesting period.

The following is a summary of restricted stock award activity for the year ended December 31, 2022:


	Shares	Weighted-Average Grant-Date Fair Value

Nonvested, Beginning of Year	138,093	$	44.48
Granted	51,600	59.95
Vested	(48,142)	45.35
Forfeited	—	—
Nonvested, End of Year	141,551	$	49.83

The weighted-average grant-date fair value of granted awards was $59.95, $43.55 and $45.97 during the years ended December 31, 2022, 2021 and 2020. The fair value of vested awards was $3.0 million, $2.1 million and $2.8 million during the years ended December 31, 2022, 2021 and 2020. As of December 31, 2022, there was $2.9 million of unrecognized compensation costs for unvested restricted stock awards to be recognized over a weighted-average period of 1.84 years.

Stock Performance Awards. Stock performance awards are granted to executive officers and certain other key employees. The awards vest at the end of a three-year performance period. The number of common shares awarded, if any, at the end of the performance period ranges from zero to 150% of the target amount based on two performance measures: i) total shareholder return relative to a peer group (TSR component) and ii) return on equity (ROE component). The awards have no voting or dividend rights during the vesting period. Vesting of the awards is accelerated in certain circumstances, including upon retirement. The amount of common shares awarded on an accelerated vesting is based either on actual performance at the end of the performance period or the amount of common shares earned at target.

The grant-date fair value of the ROE component of the stock performance awards granted during the years ended December 31, 2022, 2021 and 2020 was determined using the grant date stock price and a discounted cash flow analysis to adjust for expected unearned dividends during the vesting period. The grant-date fair value of the TSR component of the stock performance awards granted during the years ended December 31, 2022, 2021 and 2020 was determined using a Monte Carlo fair value simulation model incorporating the following assumptions:


	2022		2021		2020

Risk-free interest rate	1.52	%	0.18	%	1.42	%
Expected term (in years)	3.00		3.00		3.00
Expected volatility	32.00	%	32.00	%	19.00	%
Dividend yield	2.90	%	3.60	%	2.80	%

The risk-free interest rate was derived from yields on U.S. government bonds of a similar term. The expected term of the award is equal to the three-year performance period. Expected volatility was estimated based on actual historical volatility of our common stock over a three- or five-year period. Dividend yield was estimated based on historic and future yield estimates.

The following is a summary of stock performance award activity for the year ended December 31, 2022 (share amounts reflect awards at target):


	Shares	Weighted-Average Grant-Date Fair Value

Nonvested, Beginning of Year	189,600	$	42.54
Granted	55,800	54.91
Vested	(55,600)	43.30
Forfeited	—	—
Nonvested, End of Year	189,800	$	45.95

The weighted-average grant-date fair value of granted awards was $54.91, $38.34 and $47.79 during the years ended December 31, 2022, 2021 and 2020. The fair value of vested awards was $5.1 million, $2.5 million and $3.4 million during the years ended December 31, 2022, 2021 and 2020. As of December 31, 2022, there was $0.4 million of unrecognized compensation costs of unvested stock performance awards to be recognized over a weighted-average period of 0.91 years.