Equity-Based Compensation

The Company issues stock options and restricted stock in exchange for employee and director services. In accordance with current accounting standards, the calculated cost of its equity-based compensation awards is recognized in the Company’s consolidated statements of income over the period in which an employee or director is required to provide the services for the award. Compensation cost will not be recognized for employees or directors that do not render the requisite services. The Company recognizes the expense for equity-based compensation in its consolidated income statements on a straight-line basis based upon the number of awards that are ultimately expected to vest.

Equity-based compensation expense, the corresponding tax benefit and net equity-based compensation expense for 2014, 2013 and 2012 are as follows:



	2014		2013		2012
(amounts in thousands)
Equity-based compensation expense	$	3,088	$	2,647	$	2,236
Tax benefit	1,098		935		788
Net equity-based compensation expense	$	1,990	$	1,712	$	1,448

On May 12, 2010, the shareholders approved the Company’s 2010 Equity Award Plan (2010 Plan). Under the provisions of the 2010 Plan, stock options, restricted stock, stock appreciation rights, and other awards may be granted or awarded to employees and directors of the Company, as well as non-employees. The compensation committee of the Board of Directors determines the nature, amount, pricing and vesting of the grants or awards. All options and awards remain in effect until the earliest of the expiration, exercise, or surrender date. Options generally become exercisable in four equal installments, typically beginning one year from the date of grant, and expire no more than 15 years from the date of grant. A total of 1,300,000 shares may be granted or awarded under the 2010 plan, 628,000 of which are available for grant as of December 31, 2014.

On April 26, 2000, the shareholders approved the Company’s 2000 Equity Award Plan (Equity Plan). Under the provisions of the Equity Plan, stock options, restricted stock, stock appreciation rights, and other awards could previously be granted or awarded to employees and directors of the Company. The compensation committee of the Board of Directors determined the nature, amount, pricing, and vesting of the grants or awards. All options and awards remain in effect until the earlier of the expiration, exercise, or surrender date. Options generally become exercisable in three or four equal annual installments, typically beginning one year from the date of grant, and expire no more than 15 years from the date of grant. In certain limited instances, options granted at fair market value were expected to vest nine and one-half years from the date of grant. There are no shares or options available for grant under this plan as of December 31, 2014.

On April 24, 1991, the shareholders approved the Company’s 1991 Employee Stock Option Plan (1991 Plan). Under the provisions of the 1991 Plan, options could previously be granted to employees and directors of the Company. The exercise price for options granted under this plan was equal to or greater than the fair market value of the Company’s common stock on the date the option was granted. All options remain in effect until the earlier of the expiration, exercise, or surrender date. There are no shares or options available for grant under this plan as of December 31, 2014.

Under the Company’s 1991 Restricted Stock Plan, a total of 800,000 shares of restricted stock may be granted to certain key employees, 95,000 of which are available for grant as of December 31, 2014.

The Company utilizes the Black-Scholes option-pricing model to estimate the fair value of stock options granted on the date of grant. The per-option weighted-average fair value on the date of grant of stock options granted in 2014, 2013, and 2012 was $5.91, $5.78, and $5.47, respectively.

The fair value of the options at the date of grant was estimated using the following weighted-average assumptions for the years ended December 31, 2014, 2013 and 2012:



	2014		2013		2012
Expected life (years)	4.1		2.7		2.7
Dividend yield	1.4	%	1.0	%	0.0	%
Risk-free interest rate	1.2	%	0.4	%	0.4	%
Expected volatility	48.0	%	44.4	%	61.3	%

The Company used historical volatility calculated using daily closing prices for its common stock over periods that match the expected term of the options granted to estimate the expected volatility for the grants made in 2012, 2013 and 2014. The risk-free interest rate assumption was based upon U.S. Treasury yields appropriate for the expected term of the Company’s stock options based upon the date of grant. The expected term of the stock options granted was based upon the options expected vesting schedule and historical exercise patterns. The expected dividend yield was based upon the Company’s recent history of beginning to pay dividends in 2013, and the expectation of paying dividends in the foreseeable future.

During 2012, 2013 and 2014, the Company issued restricted stock to certain employees. The stock vests over a period of four years, with 25% of the stock issued vesting one year from the date of grant, and another 25% vesting each year thereafter until the stock is fully vested. The Company is recognizing compensation expense for these shares ratably over the expected term of the restricted stock, or four years. In the event the Company issued stock to its independent directors, the stock vests at retirement. As the directors are eligible for retirement from the Company’s Board of Directors at any point in time, the Company will recognize the expense associated with these shares on the date of grant. The shares of restricted stock issued are considered outstanding, can be voted, and are eligible to receive dividends, if any are paid. However, the restricted shares do not include a non-forfeitable right for the holder to receive dividends and none will be paid in the event the awards do not vest. Accordingly, only vested shares of outstanding restricted stock are included in the calculation of basic earnings per share.

As of December 31, 2014, total remaining stock-based compensation expense for non-vested equity-based compensation was approximately $2.7 million, which is expected to be recognized on a weighted-average basis over the next 15 months. Historically, the Company has issued shares out of treasury stock or the SECT to fulfill the share requirements from stock option exercises and restricted stock grants.

A summary of stock option activity under the 2010 Plan and Equity Plan is as follows:



	2010 Plan Options		Weighted- Average Exercise Price		Equity Plan Options		Weighted- Average Exercise Price
Outstanding at December 31, 2011	265,500		$	12.89	3,175,075		$	4.49
Granted	225,596		$	14.41	—		$	—
Exercised	(20,750	)	$	13.53	(574,353	)	$	3.58
Canceled or forfeited	(9,000	)	$	13.55	(13,175	)	$	5.42
Expired	—		$	—	(3,000	)	$	3.56
Outstanding at December 31, 2012	461,346		$	13.59	2,584,547		$	4.68
Granted	207,000		$	21.03	—		$	—
Exercised	(2,875	)	$	13.50	(107,775	)	$	4.93
Canceled or forfeited	(5,000	)	$	13.18	(2,000	)	$	5.92
Expired	—		$	—	(2,625	)	$	3.45
Outstanding at December 31, 2013	660,471		$	15.93	2,472,147		$	4.67
Granted	107,000		$	16.93	—		$	—
Exercised	(5,000	)	$	13.18	(601,800	)	$	4.23
Canceled or forfeited	(130,625	)	$	17.02	—		$	—
Expired	—		$	—	(1,750	)	$	4.34
Outstanding at December 31, 2014	631,846		$	15.89	1,868,597		$	4.82
Options Exercisable at December 31, 2014	477,722		$	15.56	1,868,597		$	4.82

For 2014, there were 5,000 shares exercised under the 2010 plan, and the intrinsic value of those exercised shares was $18,000. There were 2,875 and 20,750 shares exercised under the 2010 plan in 2013 and 2012, respectively. The intrinsic value of those shares was $17,000 and $55,000, respectively. For 2014, 2013, and 2012, the intrinsic value of the options exercised under the Equity Plan was $5.8 million, $1.6 million, and $7.4 million, respectively. At December 31, 2014, there were 135,060 options remaining outstanding under the 1991 Plan. There were no shares exercised under the 1991 Plan during 2014, 2013, or 2012.

A summary of restricted stock activity under the Equity Plan and the 1991 Restricted Stock Plan is as follows:



	Equity Plan Restricted Stock		Weighted- Average Fair Value		1991 Restricted Stock Plan		Weighted- Average Fair Value
Outstanding at December 31, 2011	221,500		$	5.01	262,375		$	9.57
Granted	—		$	—	127,500		$	15.04
Released	(40,000	)	$	4.97	(90,626	)	$	8.38
Canceled or forfeited	—		$	—	(7,500	)	$	11.14
Outstanding at December 31, 2012	181,500		$	5.02	291,749		$	12.29
Granted	—		$	—	98,000		$	20.68
Released	(40,000	)	$	4.97	(106,626	)	$	10.77
Canceled or forfeited	—		$	—	(1,600	)	$	18.04
Outstanding at December 31, 2013	141,500		$	5.04	281,523		$	15.75
Granted	—		$	—	125,200		$	16.62
Released	—		$	—	(193,652	)	$	15.26
Canceled or forfeited	—		$	—	(39,838	)	$	16.71
Outstanding at December 31, 2014	141,500		$	5.04	173,233		$	16.70

During 2014, there were 11,700 shares of restricted stock granted under the 2010 Plan, with a weighted-average fair value of $16.93. There were no releases or cancellations of these shares during 2014.

Options Outstanding at December 31, 2014

A summary of stock options that were outstanding at December 31, 2014 for the 2010 Plan and the Equity Plan is as follows:



Range of Exercise Prices:	Number of Options Outstanding	Weighted Average Exercise Price		Weighted Average Remaining Contractual Life in Years	Aggregate Intrinsic Value
2010 Plan
$12.16 - $13.75	314,250	$	13.10	9.3	$	—
$15.04 - $16.93	148,096	$	15.84	8.2	—
$20.68 - $21.41	169,500	$	21.11	11.1	—
	631,846	$	15.89	9.5	$	—
Equity Plan
$2.35 - $3.26	292,500	$	3.20	4.0	$	1,852,825
$3.48 - $4.90	1,007,972	$	4.54	3.0	5,032,901
$5.25 - $7.18	568,125	$	6.14	5.3	1,923,534
	1,868,597	$	4.82	3.9	$	8,809,260

At December 31, 2014, there were also 135,060 options remaining outstanding under the 1991 stock option plan, with 127,000 options ranging in prices from $2.88 to $6.00, and 8,000 options with a price of $16.19, all with a remaining average contractual life of 0.5 years, and having an intrinsic value of $0.5 million.

Options Exercisable at December 31, 2014

A summary of stock options that are exercisable at December 31, 2014 for the 2010 Plan and the Equity Plan is as follows:



Range of Exercise Prices:	Number of Options Exercisable	Weighted Average Exercise Price		Weighted Average Remaining Contractual Life in Years	Aggregate Intrinsic Value
2010 Plan
$12.16 - $13.75	289,750	$	13.16	9.7	$	—
$15.04 - $16.93	62,348	$	15.22	7.9	—
$20.68 - $21.41	125,624	$	21.26	12.2	—
	477,722	$	15.56	10.1	$	—
Equity Plan
$2.35 - $3.26	292,500	$	3.20	4.0	$	1,852,825
$3.48 - $4.90	1,007,972	$	4.54	3.0	5,032,901
$5.25 - $7.18	568,125	$	6.14	5.3	1,923,534
	1,868,597	$	4.82	3.9	$	8,809,260

At December 31, 2014, there were also 135,060 options exercisable under the 1991 stock option plan, with 127,000 options ranging in prices from $2.88 to $6.00, and 8,000 options with a price of $16.19, all with a remaining average contractual life of 0.5 years, and having an intrinsic value of $0.5 million.

The aggregate intrinsic values as calculated in the above charts detailing options that are outstanding and those that are exercisable, respectively, are based upon the Company’s closing stock price on December 31, 2014 of $9.53 per share.