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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 (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, 2017.

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

	Three Months Ended September 30,				Nine Months Ended September 30,
Share-based compensation related to:	2018		2017		2018		2017
Common stock grants	$	100	$	100	$	405	$	405
Stock option grants		9		4		143		130
Restricted Stock Unit awards ("RSUs")		163		102		415		307
Total share-based compensation	$	272	$	206	$	963	$	842

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

$289,000

and

$106,000

for the

three

-month periods ended

September 30, 2018

and

2017,

respectively, and approximately

$649,000

and

$441,000

for the

nine

-month periods ended

September

30,

2018

and

2017,

respectively.

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

nine

-month period ended

September

30,

2018:

	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, 2017		202,379		$	18.23
Granted		10,344			31.20
Exercised		(78,680	)		16.14
Outstanding at September 30, 2018		134,043		$	20.46		4.75	$	2,183
Exercisable at September 30, 2018		122,793		$	19.71		4.80	$	2,093
Vested and expected to vest at September 30, 2018		134,043		$	20.46		4.75	$	2,183

June 6, 2018,

the Company granted options to its directors for the purchase of

10,344

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

$31.20.

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		27.7	%
Expected dividends		None
Risk-free interest rate		2.70	%
Exercise price	$	31.20
Expected term (in years)		6.0
Weighted-average grant date fair value	$	10.15

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

nine

-month period ended

September 30, 2018

and

2017,

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

$1.2

million and

$577,000,

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

$1.3

million and

$802,000,

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

-month period ended

September 30, 2018,

shares were surrendered for this purpose. During the

nine

-month period ended

September 30, 2017,

6,511

shares were surrendered for this purpose at an average market price of

$26.45.

February 21, 2018,

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. Subject to his continued employment and the terms of his employment agreement, the shares will be issued in

December 2018.

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

nine

-month period ended

September 30, 2018:

	Restricted Stock Units			Weighted Average Award Date Fair Value
Outstanding at December 31, 2017		57,395		$	21.03
Awarded		29,867			29.30
Shares vested		(16,050	)		23.55
Outstanding at September 30, 2018		71,212		$	23.48

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, 2018

and

2017,

5,328

and

4,377

shares were surrendered at an average market price of

$27.60

and

$24.50,

respectively.

As of

September 30, 2018,

the Company had approximately

$1.2

million of unrecognized compensation expense that is expected to be recognized over a period of

3.5

years.