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Share-Based Compensation

12 Months Ended

Dec. 31, 2020

Note 20—Share-Based Compensation

Compensation cost is recognized for stock options and restricted stock awards issued to employees. Compensation cost is measured as the fair value of these awards on their date of grant. A Black-Scholes model is utilized to estimate the fair value of stock options, while the market price of the Company’s common stock at the date of grant is used as the fair value of restricted stock awards. Compensation cost is recognized over the required service period, generally defined as the vesting period for stock option awards and as the restriction period for restricted stock

awards. For awards with graded vesting, compensation cost is recognized on a straight-line basis over the requisite service period for the entire award.

Our 2004, 2012, 2019 and 2020 share-based compensation plans are long-term retention plans intended to attract, retain, and provide incentives for key employees and non-employee directors in the form of incentive and non-qualified stock options, restricted stock, and restricted stock units (“RSUs”). Our 2020 plan was adopted by our shareholders at our annual meeting on October 29, 2020. The Company assumed the obligations of CSFL under various equity incentive plans pursuant to the merger of CSFL on June 7, 2020.

Stock Options

With the exception of non-qualified stock options granted to directors under the 2004 and 2012 plans, which in some cases may be exercised at any time prior to expiration and in some other cases may be exercised at intervals less than a year following the grant date, incentive stock options granted under our 2004, 2012, 2019 and 2020 plans may not be exercised in whole or in part within a year following the date of the grant, as these incentive stock options become exercisable in 25% increments pro ratably over the four-year period following the grant date. The options are granted at an exercise price at least equal to the fair value of the common stock at the date of grant and expire ten years from the date of grant. No options were granted under the 2004 plan after January 26, 2012, and the 2004 plan is closed other than for any options still unexercised and outstanding. No options were granted under the 2012 plan after February 1, 2019, and the 2012 plan is closed other than for any options still unexercised and outstanding. No options were granted under the 2019 plan after October 29, 2020, and the 2019 plan is closed other than for any options still unexercised and outstanding. The 2020 plan is the only plan from which new share-based compensation grants may be issued. It is the Company’s policy to grant options out of the 2,072,245 shares registered under the 2020 plan.

Activity in the Company’s stock option plans is summarized in the following table. All information has been retroactively adjusted for stock dividends and stock splits.


	Year Ended December 31,
	2020			2019			2018
		Weighted			Weighted			Weighted
		Average			Average			Average
		Exercise			Exercise			Exercise
	Shares	Price		Shares	Price		Shares	Price
Outstanding at January 1, 2020	176,888	$	67.14	213,866	$	61.28	218,689	$	52.75
Granted	—		—	—		—	34,407		91.05
Assumed stock options and warrants from CSFL merger	136,831		37.85	—		—	—		—
Exercised	(52,331)		32.12	(36,978)		33.26	(33,424)		30.88
Forfeited	(4,963)		48.89	—		—	(5,806)		91.35
Outstanding at December 31, 2020	256,425		59.01	176,888		67.14	213,866		61.28
Exercisable at December 31, 2020	256,425		59.01	131,216		60.12	140,115		49.41
Weighted-average fair value of options granted during the year		$	—		$	—		$	28.01

The aggregate intrinsic value of 256,425, 176,888, and 213,866 stock options outstanding at December 31, 2020, 2019, and 2018 was $4.6 million, $3.7 million, and $1.9 million, respectively. The aggregate intrinsic value of 256,425, 131,216, and 140,115 stock options exercisable at December 31, 2020, 2019, and 2018 was $4.6 million, $3.6 million, and $1.9 million, respectively. The aggregate intrinsic value of 52,331, 36,978, and 33,424 stock options exercised for the years ended December 31, 2020, 2019, and 2018 was $2.0 million, $1.4 million and $2.0 million, respectively.

Information pertaining to options outstanding at December 31, 2020, is as follows:


					Options Outstanding					Options Exercisable
						Weighted							Weighted
						Average							Average
						Remaining		Weighted			Weighted		Remaining
Range of					Number	Contractual		Average		Number	Average		Contractual
Exercise Prices					Outstanding	Life		Exercise Price		Outstanding	Exercise Price		Life
$	19.16	-	$	40.00	45,002	3.1	years	$	31.11	45,002	$	31.11	3.1	years
$	40.01	-	$	55.00	74,579	7.7	years	$	44.46	74,579	$	44.46	7.7	years
$	55.01	-	$	70.00	74,609	4.1	years	$	63.61	74,609	$	63.61	4.1	years
$	70.01	-	$	85.00	—	—	years	$	—	—	$	—	—	years
$	85.01	-	$	91.35	62,235	6.6	years	$	91.12	62,235	$	91.12	6.6	years
					256,425	4.5	years	$	59.01	256,425	$	59.01	4.5	years

The fair value of options is estimated at the date of grant using the Black-Scholes option pricing model and expensed over the options’ vesting periods. The following weighted-average assumptions were used in valuing options issued:


	Year ended December 31,
	2020		2019		2018
Dividend yield	—	%	—	%	1.46	%
Expected life	—	years	—	years	8.5	years
Expected volatility	—	%	—	%	28.0	%
Risk-free interest rate	—	%	—	%	2.54	%

As of December 31, 2020, there was no unrecognized compensation cost related to non-vested stock option grants under the plans. The total fair value of shares vested during the years ended December 31, 2020, 2019 and 2018 was approximately $1.4 million, $799,000, and $700,000, respectively. Compensation expense of $720,000, $641,000, and $751,000 was recorded in 2020, 2019, and 2018, respectively. Of the expense in 2020, approximately $481,000 was recognized in June 2020 due to the acceleration of vesting of stock options through the merger with CSFL.

Restricted Stock

We from time-to-time also grant shares of restricted stock to key employees and non-employee directors. These awards help align the interests of these employees and directors with the interests of our shareholders by providing economic value directly related to increases in the value of our stock. The value of the stock awarded is established as the fair market value of the stock at the time of the grant. We recognize expenses, equal to the total value of such awards, ratably over the vesting period of the stock grants. Restricted stock grants to employees typically “cliff vest” after four years. Grants to non-employee directors typically vest within a 12-month period.

All restricted stock agreements are conditioned upon continued employment, or service in the case of directors. Termination of employment prior to a vesting date, as described below, would terminate any interest in non-vested shares. Prior to vesting of the shares, as long as employed by the Company, the key employees and non-employee directors will have the right to vote such shares and to receive dividends paid with respect to such shares. All restricted shares will fully vest in the event of change in control of the Company or upon the death of the recipient. Due to the merger between the Company and CSFL effective June 7, 2020, a total of 29,303 restricted stock awards became fully vested.

Non-vested restricted stock for the year ended December 31, 2020 is summarized in the following table. All information has been retroactively adjusted for stock dividends and stock splits.


		Weighted-
		Average
		Grant-Date
Restricted Stock	Shares	Fair Value
Nonvested at January 1, 2020	69,450	$	58.96
Assumed restricted stock shares from CSFL merger	9,755		60.27
Granted	9,145		55.96
Vested	(77,029)		58.67
Forfeited	(317)		65.86
Nonvested at December 31, 2020	11,004	$	59.42

The Company granted 9,145, 8,934, and 7,836 shares for the years ended December 31, 2020, 2019, and 2018, respectively. The weighted-average- grant-date fair value of restricted shares granted in 2020, 2019, and 2018 was $55.96, $73.34, and $87.37, respectively. Compensation expense of $1.5 million, $1.7 million, and $2.5 million was recorded in 2020, 2019, and 2018, respectively. Of the expense in 2020, approximately $704,000 was recognized in June 2020 due to the acceleration of vesting of restricted stock awards through the merger with CSFL.

The vesting schedule of these shares as of December 31, 2020 is as follows:


		Shares
2021		7,935
2022		751
2023		751
2024		1,567
2025		—
Thereafter		—
		11,004

As of December 31, 2020, there was $537,000 thousand of total unrecognized compensation cost related to non-vested restricted stock granted under the plans. The cost is expected to be recognized over a weighted-average period of 1.61 years as of December 31, 2020. The total fair value of shares vested during the years ended December 31, 2020, 2019 and 2018 was approximately $4.6 million, $3.0 million, and $2.5 million, respectively.

Restricted Stock Units (“RSU”)

We, from time-to-time, also grant performance RSUs and time-vested RSUs to key employees. These awards help align the interests of these employees with the interests of our shareholders by providing economic value directly related to our performance. Some performance RSU grants contain a three-year performance period while others contain a one-year performance period and a time-vested requirement (generally four years from the grant date). We communicate threshold, target, and maximum performance RSU awards and performance targets to the applicable key employees at the beginning of a performance period. Due to the merger with CSFL, all legacy and assumed performance based restricted stock units converted to a time-vesting requirement. Dividends are not paid in respect to the awards during the performance or time-vested period. The value of the RSUs awarded is established as the fair market value of the stock at the time of the grant. We recognize expenses on a straight-line basis typically over the performance and vesting/or time-vesting periods based upon the probable performance target, as applicable, that will be met. For the year ended December 31 2020, we accrued for 100.0% of the RSUs granted. Due to the merger between the Company and CSFL effective June 7, 2020, a total of 242,018 restricted stock units became fully vested.

Nonvested RSUs for the year ended December 31, 2020 is summarized in the following table.


		Weighted-
		Average
		Grant-Date
Restricted Stock Units	Shares	Fair Value
Nonvested at January 1, 2020	324,601	$	76.44
Assumed restricted stock units from CSFL merger	388,381		60.27
Granted	382,205		61.27
Vested	(275,661)		75.63
Forfeited	(68,705)		74.09
Nonvested at December 31, 2020	750,821	$	60.88

The nonvested shares of 750,821 at December 31, 2020 includes 61,123 shares that have met their three year vesting period, however, there is still a two year hold on these shares. These shares should be fully vested with the hold lifted by 2023. The Company granted 382,205, 159,521, and 113,270 shares for the year ended December 31, 2020, 2019, and 2018, respectively. The weighted-average grant-date fair value of restricted stock units granted in 2020 was $61.27. Compensation expense of $21.0 million, $6.4 million, and $5.5 million was recorded in 2020, 2019, and 2018, respectively. Of the expense in 2020, approximately $7.5 million was recognized in June 2020 due to the acceleration of vesting of restricted stock units through the merger with CSFL.

As of December 31, 2020, there was $27.7 million of total unrecognized compensation cost related to nonvested RSUs granted under the plan. This cost is expected to be recognized over a weighted-average period of 2.8 years as of December 31, 2020. The total fair value of restricted stock units that vested during the years ended December 31, 2020, 2019, and 2018 was approximately $23.6 million, $5.8 million, and $5.7 million, respectively.

Employee Stock Purchase Plan

The Company has registered 363,825 shares of common stock in connection with the establishment of an Employee Stock Purchase Plan. At the annual shareholders meeting on October 29, 2020, a proposal was adopted that increased the shares of common stock that may be issued under the plan by up to 1,400,000 shares. The plan is available to all employees who have attained age 21 and completed six months of service. The Company currently has more than 1.4 million shares available for issuances under the plan. The price at which common stock may be purchased for each quarterly option period is the lesser of 95% of the common stock’s fair value on either the first or last day of the quarter.

The 2002 Employee Stock Purchase Plan permits eligible employees to purchase Company stock at a discounted price. Beginning July 1, 2009, the 15% discount was reduced to 5%. The Company recognized $81,000, $75,000 and $82,000 in share-based compensation expense for the years ended December 31, 2020, 2019 and 2018, respectively.