Stock-Based Compensation

Under the Company’s equity incentive plans, directors and eligible employees

may

be granted incentive or non-statutory stock options, restricted stock units (“RSUs”) and/or awarded non-vested stock. As of

June 30, 2018,

there were

stock options outstanding.

There were

35,880

and

37,540

stock option shares exercised in the

six

months ended

June 30, 2018

and

2017,

respectively. The Company received

$838,000

from the exercise of stock options for

35,880

shares at

$23.37

per share that had an aggregate intrinsic value of

$718,000

during the

six

months ended

June 30, 2018

compared to

$877,000

from the exercise of stock options that had an aggregate intrinsic value of

$534,000

during the

six

months ended

June 30, 2017.

RSUs are granted under the Company’s long-term incentive plan at

cost to the recipient. RSUs generally vest ratably over

three

years or cliff vest after

one

three

years of continued employment from the date of the grant. While a portion of RSUs are time-vesting awards, others vest subject to the attainment of specified performance goals referred to as “Performance-based RSUs.” All RSUs are subject to forfeiture until vested.

Performance-based RSUs are granted at the target amount of awards. Based on the Company’s attainment of specified performance goals and consideration of market conditions, the number of shares that vest can be adjusted to a minimum of

zero

and to a maximum of

150%

of the target. The amount of performance-based RSUs that are eligible to vest is determined at the end of each performance period and is then added together to determine the total number of performance shares that are eligible to vest. Performance-based RSUs generally cliff vest

three

years from the date of grant.

Compensation costs for the time-based awards are based on the quoted market price of the Company’s stock at the grant date. Compensation costs associated with performance-based RSUs are based on grant date fair value, which considers both market and performance conditions. Compensation costs of both time-based and performance-based awards are recognized on a straight-line basis from the grant date until the vesting date of each grant.

The following table presents restricted stock unit activity during the

six

months ended

June 30, 2018:

	Time-Based RSUs					Performance-Based RSUs
				Weighted-Average					Weighted-Average
				Grant Date					Grant Date
	Shares			Fair Value		Shares			Fair Value
Balance at December 31, 2017		221,738			32.72		339,872			33.52
Granted		128,589			43.36		55,455			39.46
Vested		(65,721	)		41.59		(68,459	)		41.22
Forfeited		(8,774	)		35.29		-			-
Balance at June 30, 2018		275,832			35.48		326,868			32.91

The compensation expense recorded for RSUs was

$1.9

million for the

three

months ended

June 30, 2018,

compared to

$1.4

million in the same period a year ago. For the

six

months ended

June 30, 2018

and

2017,

compensation expense recorded relating to the RSUs was

$3.4

million and

$2.6

million, respectively. Unrecognized stock-based compensation expense related to RSUs was

$13.3

million and

$10.6

million as of

June 30, 2018

and

2017,

respectively. These costs are expected to be recognized over the next

2.1

years and

2.2

years for time-based and performance-based RSUs, respectively.

As of

June 30, 2018,

2,591,461

shares were available under the Company’s

2005

Incentive Plan (as Amended and Restated) for future grants.

Tax benefit from share-based payment arrangements of

$0.8

million reduced income tax expense in the

first

six

months of

2018

compared to

$2.6

million in the same period a year ago.