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Stock-based Compensation and Benefits

12 Months Ended

Dec. 31, 2023

Stock-based Compensation and Benefits

Stock-based Compensation and Benefits

Note 16 Stock-based Compensation and Benefits

The Company provides stock-based compensation in accordance with shareholder-approved plans. On May 9, 2023, shareholders approved the 2023 Omnibus Incentive Plan (the "2023 Plan"). The 2023 Plan replaces the 2014 Omnibus Incentive Plan (the "Prior Plan"), pursuant to which the Company granted equity awards prior to the approval of the 2023 Plan. Pursuant to the 2023 Plan, the Compensation Committee of the Board of Directors has the authority to grant, from time to time, awards of stock options, stock appreciation rights, restricted stock, restricted stock units, performance units, other stock-based awards, or any combination thereof to eligible persons.

As of December 31, 2023, the aggregate number of Class A common stock available for issuance under the 2023 Plan is 1,163,729 shares. Any shares subject to award under the 2023 Plan will be counted against the amount available for issuance as one share for every one share granted. The 2023 Plan provides for recycling of shares from both the Prior Plan and the 2023 Plan, the terms of which are further described in the Company's Proxy Statement for its 2023 Annual Meeting of Shareholders. Upon an option exercise, it is the Company’s policy to issue shares from treasury stock.

To date, the Company has issued stock options, restricted stock and performance stock units under the plans. The Compensation Committee sets the option exercise price at the time of grant, but in no case is the exercise price less than the fair market value of a share of stock at the date of grant.

During 2023, the Compensation Committee approved the adoption of the 2023 Equity Unit Incentive Plan (the “2UniFi Plan”), an equity incentive plan with respect to class B units of 2Unifi, LLC, a wholly owned subsidiary of the Company. The 2UniFi Plan provides for the grant of up to 200,000 Class B Units (intended to be in the form of profit interests) to the employees and other service providers of 2UniFi and its affiliates, including the named executive officers of the Company. The 2UniFi Plan is administered by the Managing Member Board of 2UniFi and any grant of Class B units to an executive officer of the Company is subject to the approval of the Company’s Compensation Committee. As of December 31, 2023, the Managing Member Board had granted 112,000 units. The awards vest over a 5 year period with 50% of the awards vesting on the third anniversary of the grant date, and 25% vesting on the fourth and fifth anniversary of the grant date, respectively.

Expense recognized on the profit interest awards during 2023 was immaterial. At December 31, 2023, there was $0.1 million of total unrecognized compensation cost related to non-vested units under the plan.

Stock options

The Company issues stock options, which are primarily time-vesting with 1/3 vesting on each of the first, second and third anniversary of the date of grant or date of hire. The expense associated with the awarded stock options was measured at fair value using a Black-Scholes option-pricing model. The outstanding option awards vest on a graded basis over 1-4 years of continuous service and have 10-year contractual terms.

Below are the weighted average assumptions used in the Black-Scholes option pricing model to determine fair value of the Company’s stock options granted in 2023, 2022 and 2021:


	2023			2022			2021
Weighted average fair value	$	9.01		$	11.14		$	9.65
Weighted average risk-free interest rate ⁽¹⁾		3.57%			2.69%			1.14%
Expected volatility ⁽²⁾		32.48%			31.16%			30.54%
Expected term (years)⁽³⁾		6.05			6.04			6.04
Dividend yield⁽⁴⁾		2.99%			2.24%			2.09%

(1)		The risk-free rate for the expected term of the options was based on the U.S. Treasury yield curve at the date of grant and based on the expected term.
(2)		Expected volatility was calculated using historical volatility of the Company’s stock price for a period commensurate with the expected term of the options.
(3)		The expected term was estimated to be the average of the contractual vesting term and time to expiration.
(4)		The dividend yield was calculated in accordance with the Company’s dividend policy at the time of grant.

The Company issued stock options in accordance with the 2023 Plan during 2023. The following table summarizes stock option activity for 2023:


							Weighted
							average
				Weighted			remaining
				average			contractual		Aggregate
				exercise			term in		intrinsic
		Options		price			years		value
Outstanding at December 31, 2022		717,088		$	29.79		5.98		$	8,850
Granted		107,530			33.46
Exercised		(60,710)			20.87
Forfeited		(8,362)			36.90
Outstanding at December 31, 2023		755,546			30.95		5.79			5,270
Options exercisable at December 31, 2023		574,435			29.15		4.87			4,881
Options vested and expected to vest		740,013			30.84		5.72			5,229

Stock option expense is a component of salaries and benefits in the consolidated statements of operations and totaled $0.9 million, $0.7 million and $0.9 million for 2023, 2022 and 2021, respectively. At December 31, 2023, there was $0.5 million of total unrecognized compensation cost related to non-vested stock options granted under the plans. The cost is expected to be recognized over a weighted average period of 2.0 years.

The following table summarizes the Company’s outstanding stock options:


					Options outstanding							Options exercisable
							Weighted average
					Number		remaining contractual		Weighted average			Number		Weighted average
Range of exercise price					outstanding		life (years)		exercise price			exercisable		exercise price
$	18.00	-	22.99		99,955		1.80		$	19.37		99,955		$	19.37
	23.00	-	27.99		159,313		6.24			23.14		159,313			23.14
	28.00	-	32.99		82,991		4.21			32.60		82,991			32.60
	33.00	-	37.99		261,106		6.43			33.86		156,108			34.12
	38.00	and above			152,181		7.72			40.83		76,068			40.65

Restricted stock awards

The Company issues primarily time-based restricted stock awards that vest over a range of a 1 - 3 year period. Restricted stock with time-based vesting was valued at the fair value of the shares on the date of grant as they are assumed to be held beyond the vesting period.

Performance stock units

During the years ended December 31, 2023, 2022 and 2021, the Company granted 79,215, 51,931, and 52,526 performance stock units in accordance with the 2023 Plan and Prior Plan, respectively. The Company grants performance stock units which represent initial target awards and do not reflect potential increases or decreases resulting from the final performance results, which are to be determined at the end of the three-year performance period (vesting date). The actual number of shares to be awarded at the end of the performance period will range from 0% - 150% of the initial target awards. Sixty percent of the award is based on the Company’s cumulative earnings per share (EPS target) during the performance period, and forty percent of the award is based on the Company’s cumulative total shareholder return (TSR target), or TSR, during the performance period. On the vesting date, the Company’s TSR will be compared to the respective TSRs of the companies comprising the KBW Regional Index at the grant date to determine the shares awarded. The fair value of the EPS target portion of the award was determined based on the closing stock price of the Company’s common stock on the grant date. The fair value of the TSR target portion of the award was determined using a Monte Carlo Simulation at the grant date.

In establishing PSU components during 2021 and 2020, the Compensation Committee determined the EPS target portion of the award would not be an effective metric in light of economic uncertainty surrounding COVID-19. Consequently, the Compensation Committee granted an award based upon a relative return on tangible assets (“ROTA”). Annually, the Company’s ROTA is compared to the respective ROTA of companies comprising the KBW Regional Index. At the end of the measurement period, the Company’s ranking will be averaged to determine the shares awarded. The fair value of the ROTA award was determined based on the closing stock price of the Company’s common stock on the grant date.

The weighted-average grant date fair value per unit for the EPS target portion and the TSR target portion granted during 2023 was $33.46 and $27.06, respectively. The initial weighted-average performance price for the TSR target portion granted during 2023 was $42.37. During 2023 and 2022, the Company awarded an additional 18,664 and 17,741 units due to final performance results related to performance stock units granted in 2020 and 2019, respectively.

The following table summarizes restricted stock and performance stock unit activity during 2023 and 2022:


				Weighted						Weighted
		Restricted		average grant-			Performance			average grant-
		stock shares		date fair value			stock units			date fair value
Unvested at December 31, 2021		144,467		$	33.40		160,394		$	31.36
Granted		118,190			40.76		51,931			38.40
Adjustment due to performance		—			—		17,741			32.44
Vested		(84,898)			33.62		(67,875)			31.27
Forfeited		(12,622)			37.00		(6,334)			32.70
Unvested at December 31, 2022		165,137		$	38.28		155,857		$	33.81
Granted		186,546			31.16		79,215			30.57
Adjustment due to performance		—			—		18,664			25.94
Vested		(101,171)			34.42		(74,142)			26.55
Forfeited		(9,928)			36.42		(7,812)			34.58
Unvested at December 31, 2023		240,584		$	34.47		171,782		$	34.56

As of December 31, 2023, the total unrecognized compensation cost related to the non-vested restricted stock awards and performance stock units totaled $4.5 million and $2.8 million, respectively, and is expected to be recognized over a weighted average period of approximately 2.0 years and 1.8 years, respectively. Expense related to non-vested restricted stock awards totaled $4.3 million, $3.4 million and $2.7 million during 2023, 2022 and 2021, respectively. Expense related to non-vested performance stock units totaled $2.0 million, $1.9 million and $2.0 million during 2023, 2022 and 2021, respectively. Expense related to non-vested restricted stock awards and units is a component of salaries and benefits in the Company’s consolidated statements of operations.

Employee stock purchase plan

The 2014 Employee Stock Purchase Plan (“ESPP”) is intended to be a qualified plan within the meaning of Section 423 of the Internal Revenue Code of 1986 and allows eligible employees to purchase shares of common stock up to a limit of $25,000 per calendar year and 2,000 shares per offering period. The price an employee pays for shares is 90.0% of the fair market value of Company common stock on the last day of the offering period. The offering periods are the six-month periods commencing on March 1 and September 1 of each year and ending on August 31 and February 28 (or February 29 in the case of a leap year) of each year. There are no vesting or other restrictions on the stock purchased by employees under the ESPP. Under the ESPP, the total number of shares of common stock reserved for issuance totaled 400,000 shares, of which 235,919 was available for issuance at December 31, 2023.

Under the ESPP, employees purchased 26,563 shares and 19,414 shares during 2023 and 2022, respectively.