Quarterly report pursuant to Section 13 or 15(d)

Share-Based Payments

v2.3.0.15
Share-Based Payments
 9 Months Ended
Sep. 30, 2011
Share-Based Payments [Abstract]  
Share-Based Payments
5.
Share-Based Payments

The Company’s general practice has been to make a single annual grant of share-based compensation to key employees and to make other employee grants only in connection with new employment or promotions.  Forms of share-based compensation granted to employees by the Company include stock options, non-vested shares of common stock (“non-vested share”), and performance shares.  The Company also typically makes a single annual grant of non-vested shares to non-employee directors in conjunction with the annual election of non-employee directors to the Board of Directors.  Share-based compensation is based on the grant date fair value of the instrument and is recognized, net of estimated forfeitures, ratably over the requisite service period, or vesting period. The Company estimates forfeitures based upon historical experience.  All share-based compensation expense is recognized in salaries, wages and employee benefits.

Employee Activity
 
Stock option grants to employees typically expire seven years from the grant date and vest ratably over a three-year period.  The Company used the Black-Scholes option-pricing model to estimate the grant-date fair value of options granted.  The weighted-average fair value of options granted during the nine months ended September 30, 2011 and 2010 was $10.68 and $8.24, respectively.  No stock options were granted during the three months ended September 30, 2011 and 2010.  The fair values were estimated using the following weighted-average assumptions:

 
Nine months ended
  
 
September 30,
    
September 30,
  
 
2011
    
2010
  
Expected dividend yield
 1.0 %   1.3 %
Expected stock price volatility
 44.9 %   45.7 %
Weighted average risk-free interest rate
 2.4 %   2.5 %
Expected life of options (years)
 4.6     4.5  

During the three months ended September 30, 2011 and 2010, share-based compensation expense for options granted to employees was $959 and $1,365, respectively.   The total tax benefit related to the share-based expense for these options for the three months ended September 30, 2011 and 2010, was $252 and $415, respectively.  During the nine months ended September 30, 2011 and 2010, share-based compensation expense for options granted to employees was $3,023 and $4,448, respectively.   The total tax benefit related to the share-based expense for these options for the nine months ended September 30, 2011 and 2010, was $803 and $1,290, respectively.  Total compensation cost, net of estimated forfeitures, related to the options not yet recognized in earnings was $3,769 at September 30, 2011. Total unrecognized compensation cost will be adjusted for future changes in estimated forfeitures.
 
The following tables summarize the Company’s employee stock option activity and related information for the three months ended September 30, 2011:
 
 
Three months ended September 30, 2011
                   
Weighted-
       
Weighted-
  
Aggregate
  
Average
       
Average
  
Intrinsic
  
Remaining
 
Options
    
Exercise
  
Value
  
Contractual
 
(000)
    
Price
  
(000)
  
Term
Outstanding at June 30, 2011
3,498
    
$
26
          
Granted
-
      
-
          
Exercised
 (4
)
    
 22
          
Forfeited
 -
 
    
 -
          
Outstanding at September 30, 2011
 3,494
    
$
 26
  
$
14,336 
  
3.6 
Exercisable at September 30, 2011
 2,714
    
$
 27
  
$
9,053 
  
3.2 
 
The following tables summarize the Company’s employee stock option activity and related information for the nine months ended September 30, 2011:

 
Nine months ended September 30, 2011
                   
Weighted-
       
Weighted-
  
Aggregate
  
Average
       
Average
  
Intrinsic
  
Remaining
 
Options
    
Exercise
  
Value
  
Contractual
 
(000)
    
Price
  
(000)
  
Term
Outstanding at December 31, 2010
3,702
    
$
26
          
Granted
118
      
29
          
Exercised
 (321
)
    
 23
          
Forfeited
 (5
)
    
 25
          
Outstanding at September 30, 2011
 3,494
    
$
 26
  
$
14,336 
  
3.6 
Exercisable at September 30, 2011
 2,714
    
$
 27
  
$
9,053 
  
3.2 

During the first quarter of 2011, the Company granted 108,000 non-vested shares to key employees with a weighted-average fair value of $28.61.  Non-vested share grants to employees vest ratably over a three-year period.  The non-vested shares’ fair values were estimated using closing market prices on the day of grant. Share-based compensation expense was $253 and $641 during the three and nine months ended September 30, 2011 for non-vested shares granted to employees. The total tax benefit related to this share-based expense was $100 and $252 for the three and nine months ended September 30, 2011.  As of September 30, 2011, total compensation cost, net of estimated forfeitures, related to the non-vested shares not yet recognized in earnings was $2,348.

During the first quarter of 2011, the Company granted performance shares to key employees.  Under the terms of the performance share agreements, on the third anniversary of the grant date, the Company will issue to the employees a calculated number of common stock shares based on the three year performance of the Company’s common stock share price as compared to the share price performance of a selected peer group.  The median number of shares eligible for issuance to employees under these agreements is 38,000.  No shares may be issued if the Company share price performance outperforms 30% or less of the peer group, but the number of shares issued may be increased to 75,000 shares if the Company share price performs better than 90% of the peer group.  The fair value of the performance shares was estimated to be $30.17 per share using a Monte Carlo simulation with a risk free rate of return of 1.4% and a three year volatility of 47.7%.  Share-based compensation expense for the performance shares was $95 and $240 during the three and nine months ended September 30, 2011.  The total tax benefit related to this share-based expense was $37 and $94 for the three and nine months ended September 30, 2011.  As of September 30, 2011, total compensation cost, net of estimated forfeitures, related to the performance shares not yet recognized in earnings was $893.
 
Under the 2005 Employee Stock Purchase Plan (the “ESPP”), which has been approved by shareholders, the Company is authorized to issue up to a remaining 434,149 shares of common stock to employees of the Company. These shares may be issued at a price equal to 90% of the lesser of the market value on the first day or the last day of each nine-month purchase period. Common stock purchases are paid for through periodic payroll deductions and/or up to two large lump sum contributions. For the nine months ended September 30, 2011, participants under the plan purchased 4,941 shares at an average price of $25.82 per share. For the nine months ended September 30, 2010, participants under the plan purchased 3,973 shares at an average price of $22.98 per share. The weighted-average fair value of each purchase right under the ESPP granted for the nine months ended September 30, 2011, which is equal to the discount from the market value of the common stock at the end of each nine month purchase period, was $7.97 per share.  The weighted-average fair value of each purchase right under the ESPP granted for the nine months ended September 30, 2010, which is equal to the discount from the market value of the common stock at the end of each nine month purchase period, was $4.27 per share.   Share-based compensation expense of $40 and $17 was recognized during the nine months ended September 30, 2011 and 2010, respectively.

Non-employee Director Activity

Grants of non-vested shares to non-employee directors vest ratably over the elected term to the Board of Directors, or one year.  Share-based compensation expense for non-vested shares granted to non-employee directors during the three months ended September 30, 2011 and 2010 was $195 and $141, respectively.  The total tax benefit related to this share-based expense was $76 and $57 for the three months ended September 30, 2011 and 2010, respectively. Share-based compensation expense during the nine months ended September 30, 2011 and 2010 was $513 and $422, respectively.  The total tax benefit related to this share-based expense was $201 and $172 for the nine months ended September 30, 2011 and 2010, respectively.  Total compensation cost, net of estimated forfeitures, related to the non-vested shares granted to non-employee directors not yet recognized in earnings was $465 at September 30, 2011.  Total unrecognized compensation cost will be adjusted for future changes in estimated forfeitures.

In addition to the above activity, each May from 1995 to 2005 options were granted to the non-employee directors of the Company.  The options have terms of ten years and are fully exercisable.  At September 30, 2011, 52,000 options were outstanding and will expire between May 2012 and May 2015.  At September 30, 2011, the weighted average exercise price per share and remaining contractual term for the outstanding options of non-employee directors were $21 and 2.3 years, respectively.