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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, 2016.

The compensation cost charged against income for those plans is included in selling, general & administrative expenses as follows (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
Share-based compensation related to:	2017		2016		2017		2016
Common stock granted to the Board of Directors	$	105	$	105	$	105	$	105
Common stock granted to the Chief Executive Officer		100		100		200		200
Stock options granted to directors and employees		117		141		126		177
Restricted Stock Unit awards to employees		105		95		205		160
Total share-based compensation	$	427	$	441	$	636	$	642

The total income tax benefit recognized in the condensed consolidated statements of income for share-based compensation arrangements was approximately

$199,000

and

$103,000,

respectively, for the

three

-month periods ended

June 30, 2017

and

2016,

and approximately

$336,000

and

$161,000,

respectively, for the

six

-month periods ended

June 30, 2017

and

2016

The following is a summary of stock option activity under all plans for the

three

-month period ended

June 30, 2017

	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, 2016		232,578		$	16.53
Granted		12,336			27.05
Exercised		(33,196	)		26.45
Expired		(3,750	)		18.85
Outstanding at June 30, 2017		207,968		$	17.41		3.75	$	2,201
Exercisable at June 30, 2017		201,718		$	17.21		3.80	$	2,177
Vested and expected to vest at June 30, 2017		207,968		$	17.41		3.75	$	2,201

June 6, 2017,

the Company granted options to its directors for the purchase of

12,336

shares of common stock at that day’s closing price of

$27.05.

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	29.1%
Expected dividends	None
Risk-free interest rate	1.84%
Exercise price	$27.05
Expected term (in years)	5.8
Weighted-average grand date fair value	$8.51

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 estimated based on historical option exercise activity.

During the

six

-month periods ended

June 30, 2017

and

2016

, 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

$391,000

and

$518,000,

respectively, and the total amount of consideration received by the Company from the exercised options was approximately

$487,000

and

$449,000,

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

six

-month period ended

June 30, 2017

there were

6,511

surrendered at an average market price of

$26.45.

During the

six

-month period ended

June 30, 2016

there were

shares surrendered for this purpose.

February 2

2017,

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 in

December, 2017.

The following table summarizes information about Restricted Stock Units (“RSUs”) activity during the

six

-month period ended

June 30, 2017:

	Restricted Stock Units			Weighted Average Award Date Fair Value
Unvested at December 31, 2016		46,558		$	20.05
Awarded		30,360			24.70
Shares vested		(13,419	)		23.54
Unvested at June 30, 2017		63,499		$	21.23

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

six

-month periods ended

June 30, 2017

and

2016,

4,377

and

3,889

shares were surrendered at an average market price of

$24.50

and

$22.82,

respectively.

As of

June 30, 2017,

the Company had approximately

$900,000

of unrecognized compensation expense, which is expected to be recognized over a period of

3.75

years