(4)

Share-Based Compensation

Share-based compensation is measured at the grant date based on the fair value of the award and is recognized as an expense over the requisite service period (generally the vesting period of the equity grant).

The Company issues share-based awards through several plans that are described in detail in the notes to the consolidated financial statements for the year ended December 31, 2015. The compensation cost charged against income for those plans is included in selling, general & administrative expenses as follows (in thousands):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2016		2015		2016		2015
Total share-based compensation expense	$	229	$	226	$	871	$	873

Share-based compensation for the nine-month periods ended September 30, 2016 and 2015 includes approximately $105,000, in each period respectively, representing the fair value of the Company’s common stock granted during the periods to the Company’s Board of Directors.

The total income tax benefit recognized in the condensed consolidated statements of income for share-based compensation arrangements was approximately $67,000 and $63,000, for the three-month periods ended September 30, 2016 and 2015, respectively, and $264,000 and $256,000, for the nine-month periods ended September 30, 2016 and 2015, respectively.

The following is a summary of stock option activity under all plans for the nine-month period ended September 30, 2016:

	Shares Under Options			Weighted Average Exercise Price (per share)		Weighted Average Remaining Contractual Life (in years)		Aggregate Intrinsic Value (in thousands)
Outstanding at December 31, 2015		270,205		$	15.40
Granted		17,184			22.02
Exercised		(44,887	)		11.79
Outstanding at September 30, 2016		242,502		$	16.54		3.98	$	2,415
Exercisable at September 30, 2016		220,002		$	16.05		4.18	$	2,298
Vested and expected to vest at September 30, 2016		242,502		$	16.54		3.98	$	2,415

On June 9, 2016, the Company granted options to its directors for the purchase of 17,184 shares of common stock at that day’s closing price of $22.02. The compensation expense related to these grants was determined as the fair value of the options using the Black Scholes option pricing model based on the following assumptions:

Expected volatility		29.7	%
Expected dividends		None
Risk-free interest rate		0.9	%
Exercise price	$	22.02
Expected term (years)		5.0
Weighted average grant date fair value	$	6.11

The stock volatility for each grant is determined based on a review of the experience of the weighted average of historical daily price changes of the Company’s common stock over the expected option term, and the risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods corresponding with the expected term of the option. The expected term is calculated based on the simplified method.

During the nine-month periods ended September 30, 2016 and 2015, the total intrinsic value of all options exercised (i.e., the difference between the market price on the exercise date and the price paid by the employees to exercise the options) was approximately $564,000 and $989,000, respectively, and the total amount of consideration received by the Company from the exercised options was approximately $529,000 and $258,000, respectively. At its discretion, the Company allows option holders to surrender previously owned common stock in lieu of paying the exercise price and withholding taxes. During the nine months ended September 30, 2016, there were no shares surrendered for this purpose. During the nine months ended September 30, 2015, there were 1,632 shares surrendered at an average market price of $21.97.

During each of the three-month periods ended September 30, 2016 and 2015, the Company recognized compensation expense related to stock options granted to directors and employees of approximately $34,000 and $44,000, respectively. During each of the nine-month periods ended September 30, 2016 and 2015, the Company recognized compensation expense related to stock options granted to directors and employees of approximately $212,000 and $237,000, respectively.

On February 22, 2016, the Company’s Compensation Committee approved the award of $400,000, payable in shares of common stock to the Company’s Chairman, Chief Executive Officer, and President under the 2003 Incentive Plan. The shares will be issued on December 22, 2016. The Company recorded compensation expense associated with the award of $100,000 and $300,000, respectively, during the three- and nine-month periods ended September 30, 2016. The Company recorded compensation expense associated with a similar award of $100,000 and $300,000, respectively, during the three- and nine-month periods ended September 30, 2015.

The following table summarizes information about Restricted Stock Units (“RSUs”) activity during the nine-month period ended September 30, 2016:

	Restricted Stock Units			Weighted Average Award Date Fair Value
Unvested at December 31, 2015		40,645		$	19.67
Awarded		17,822			21.66
Shares vested		(11,909	)		20.94
Unvested at September 30, 2016		46,558		$	20.04

During the three-month periods ended September 30, 2016 and 2015, the Company recorded compensation expense related to RSUs of approximately $95,000 and $82,000, respectively. During the nine-month periods ended September 30, 2016 and 2015, the Company recorded compensation expense related to RSUs of approximately $254,000 and $231,000, respectively.

At the Company’s discretion, RSU holders are given the option to net-share settle to cover the required minimum withholding tax, and the remaining amount is converted into the equivalent number of common shares. During the nine-month periods ended September 30, 2016 and 2015, 3,889 and 3,405 shares were surrendered at an average market price of $22.82 and $23.15, respectively.

As of September 30, 2016, the Company had approximately $947,000 of unrecognized compensation expense, which is expected to be recognized over a period of 3.5 years