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Equity-Based Compensation Plans

12 Months Ended

Dec. 31, 2013

Note 15. Equity-Based Compensation Plans

At December 31, 2013, the Company had the following equity-based compensation plans: the First Bancorp 2007 Equity Plan, the First Bancorp 2004 Stock Option Plan, and the First Bancorp 1994 Stock Option Plan. The Company’s shareholders approved all equity-based compensation plans. The First Bancorp 2007 Equity Plan became effective upon the approval of shareholders on May 2, 2007. As of December 31, 2013, the First Bancorp 2007 Equity Plan was the only plan that had shares available for future grants.

The First Bancorp 2007 Equity Plan is intended to serve as a means to attract, retain and motivate key employees and directors and to associate the interests of the plans’ participants with those of the Company and its shareholders. The First Bancorp 2007 Equity Plan allows for both grants of stock options and other types of equity-based compensation, including stock appreciation rights, restricted stock, restricted performance stock, unrestricted stock, and performance units.

Recent equity grants to employees have either had performance vesting conditions, service vesting conditions, or both. Compensation expense for these grants is recorded over the various service periods based on the estimated number of equity grants that are probable to vest. No compensation cost is recognized for grants that do not vest and any previously recognized compensation cost will be reversed. As it relates to director equity grants, the Company grants common shares, valued at approximately $16,000 to each non-employee director (currently 12 in total) in June of each year. Compensation expense associated with these director grants is recognized on the date of grant since there are no vesting conditions.

Pursuant to an employment agreement, the Company granted the chief executive officer 75,000 non-qualified stock options and 40,000 shares of restricted stock during the third quarter of 2012. The option award and the restricted stock award will vest in full on December 31, 2014 and December 31, 2015, respectively, if the Company achieves certain earnings targets for those years, and will be forfeited if the applicable targets are not achieved. Compensation expense for this grant will be recorded over the various periods based on the estimated number of options and restricted stock that are probable to vest. If the awards do not vest, no compensation cost will be recognized and any previously recognized compensation cost will be reversed. Based on current conditions, the Company has concluded that it is not probable that these awards will vest, and thus no compensation expense has been recorded.

The Company granted long-term restricted shares of common stock to certain senior executives on February 23, 2012 with a two year minimum vesting period. The total compensation expense associated with this grant was $58,900 and the grant will fully vest on February 23, 2014. The Company recorded $20,900 and $37,400 in compensation expense related to this grant during 2013 and 2012, respectively, and expects to record the remaining $600 in expense during the first quarter of 2014.

The Company granted long-term restricted shares of common stock to certain senior executives on February 24, 2011 with a two year minimum vesting period. The total compensation expense associated with the February 24, 2011 grant was $89,600 and the grant fully vested on February 24, 2013. The Company recorded $6,500, $41,400, and $41,700 in compensation expense during 2013, 2012, and 2011, respectively.

The Company granted long-term restricted shares of common stock to certain senior executives on December 11, 2009 with a two year minimum vesting period. The total compensation expense associated with the December 11, 2009 grant was $398,000 and the grant fully vested on December 11, 2011. The Company recorded $298,000 in compensation expense related to this grant during 2011.

The Company also recorded compensation expense of $299,000 in 2011 related to the partial vesting of a June 17, 2008 grant of a combination of performance units and stock options.

Under the terms of the predecessor plans and the First Bancorp 2007 Equity Plan, stock options can have a term of no longer than ten years, and all options granted thus far under these plans have had a term of ten years. The Company’s awards, including restricted stock and stock options, provide for immediate vesting if there is a change in control (as defined in the plans).

At December 31, 2013, there were 463,813 stock options outstanding related to the three First Bancorp plans, with exercise prices ranging from $9.76 to $22.12. At December 31, 2013, there were 761,538 shares remaining available for grant under the First Bancorp 2007 Equity Plan.

The Company issues new shares of common stock when options are exercised.

The Company measures the fair value of each option award on the date of grant using the Black-Scholes option-pricing model. The Company determines the assumptions used in the Black-Scholes option pricing model as follows: the risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of the grant; the dividend yield is based on the Company’s dividend yield at the time of the grant (subject to adjustment if the dividend yield on the grant date is not expected to approximate the dividend yield over the expected life of the option); the volatility factor is based on the historical volatility of the Company’s stock (subject to adjustment if future volatility is reasonably expected to differ from the past); and the weighted-average expected life is based on the historical behavior of employees related to exercises, forfeitures and cancellations.

The Company’s equity grants for 2013 were the issuance of 13,164 shares of common stock to non-employee directors on June 3, 2013 (1,097 shares per director), at a fair market value of $14.68 per share, which was the closing price of the Company’s common stock on that date.

The Company’s equity grants for 2012 were the issuance of 1) 9,559 shares of long-term restricted stock to certain senior executives on February 23, 2012, at a fair market value of $10.96 per share, which was the closing price of the Company’s common stock on that date, 2) 25,452 shares of common stock to non-employee directors on June 1, 2012 (1,818 shares per director), at a fair market value of $8.86 per share, which was the closing price of the Company’s common stock on that date, 3) 40,000 shares of restricted stock to the chief executive officer on August 28, 2012, at a fair market value of $9.76 per share, which was the closing price of the Company’s common stock on that date, and 4) 75,000 stock options to the chief executive officer on August 28, 2012, at a fair value of $3.65 per share on the date of the grant using the Black-Scholes option pricing model with the following assumptions:

		2012
Expected dividend yield		3.28%
Risk-free interest rate		1.64%
Expected life		10 years
Expected volatility		41.82%

The Company recorded total stock-based compensation expense of $222,000, $311,000 and $905,000 for the years ended December 31, 2013, 2012, and 2011, respectively. Of the $222,000 in expense that was recorded in 2013, approximately $193,000 related to the June 3, 2013 director grants, which is classified as “other operating expenses” in the Consolidated Statements of Income (Loss). The remaining $29,000 in expense relates the employee grants discussed above and is recorded as “salaries expense.” Stock based compensation is reflected as an adjustment to cash flows from operating activities on the Company’s Consolidated Statement of Cash Flows. The Company recognized $87,000, $121,000, and $353,000 of income tax benefits related to stock based compensation expense in the income statement for the years ended December 31, 2013, 2012, and 2011, respectively.

As noted above, certain of the Company’s stock option grants contain terms that provide for a graded vesting schedule whereby portions of the award vest in increments over the requisite service period. The Company has elected to recognize compensation expense for awards with graded vesting schedules on a straight-line basis over the requisite service period for the entire award. Compensation expense is based on the estimated number of stock options and awards that will ultimately vest. Over the past five years, there have only been minimal amounts of forfeitures, and therefore the Company assumes that all awards granted without performance conditions will become vested.

The following table presents information regarding the activity since December 31, 2010 related to all of the Company’s stock options outstanding:

	Options Outstanding
	Number of Shares			Weighted- Average Exercise Price		Weighted- Average Contractual Term (years)		Aggregate Intrinsic Value

Balance at December 31, 2010		642,397		$	18.11

Granted		—			—
Exercised		(2,300	)		13.30			$	6,949
Forfeited		—			—
Expired		(146,247	)		15.47

Balance at December 31, 2011		493,850		$	18.92

Granted		75,000			9.76
Exercised		—			—
Forfeited		—			—
Expired		(47,237	)		16.70

Balance at December 31, 2012		521,613		$	17.80

Granted		—			—
Exercised		—			—
Forfeited		—			—
Expired		(57,800	)		16.88

Outstanding at December 31, 2013		463,813		$	17.92		3.2	$	572,992

Exercisable at December 31, 2013		388,813		$	19.49		2.2	$	62,617

No stock options were exercised in 2012 or 2013. In 2011, the Company received $30,000 as a result of stock option exercises. The Company recorded no tax benefits from the exercise of nonqualified stock options during the years ended December 31, 2013, 2012, and 2011.

The following table summarizes information about the stock options outstanding at December 31, 2013:

	Options Outstanding					Options Exercisable
Range of Exercise Prices	Number Outstanding at 12/31/13		Weighted- Average Remaining Contractual Life	Weighted- Average Exercise Price		Number Exercisable at 12/31/13		Weighted- Average Exercise Price

$8.85 to $11.06		75,000	8.7	$	9.76		—	$	—
$11.06 to $13.27		—	—		—		—		—
$13.27 to $15.48		27,000	5.4		14.35		27,000		14.35
$15.48 to $17.70		109,584	3.9		16.60		109,584		16.60
$17.70 to $19.91		56,250	1.7		19.65		56,250		19.65
$19.91 to $22.12		195,979	0.9		21.77		195,979		21.77
		463,813	3.2	$	17.92		388,813	$	19.49

The following table presents information regarding the activity during 2011, 2012, and 2013 related to the Company’s outstanding performance units and restricted stock:

	Nonvested Performance Units					Long-Term Restricted Stock
	Number of Units			Weighted- Average Grant-Date Fair Value		Number of Units			Weighted- Average Grant-Date Fair Value

Nonvested at December 31, 2010		27,113		$	16.53		29,267		$	13.59

Granted during the period		—			—		7,259			14.54
Vested during the period		(27,022	)		16.53		(29,267	)		13.59
Forfeited or expired during the period		(91	)		16.53		—			—

Nonvested at December 31, 2011		—		$	—		7,259		$	14.54

Granted during the period		—			—		49,559			9.99
Vested during the period		—			—		—			—
Forfeited or expired during the period		—			—		(2,474	)		12.55

Nonvested at December 31, 2012		—		$	—		54,344		$	10.48

Granted during the period		—			—		—			—
Vested during the period		—			—		(6,163	)		14.54
Forfeited or expired during the period		—			—		(2,807	)		10.96

Nonvested at December 31, 2013		—		$	—		45,374		$	9.90

- Definition

The entire disclosure for compensation-related costs for equity-based compensation, which may include disclosure of policies, compensation plan details, allocation of equity compensation, incentive distributions, equity-based arrangements to obtain goods and services, deferred compensation arrangements, employee stock ownership plan details and employee stock purchase plan details.

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