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Stock Based Compensation

9 Months Ended

Sep. 30, 2021

Share-based Payment Arrangement [Abstract]

Equity Plans

2017 Omnibus Incentive Plan

The Company adopted the Tiptree 2017 Omnibus Incentive Plan (2017 Equity Plan) on June 6, 2017, which permits the grant of restricted stock units (RSUs), stock, and stock options up to a maximum of 6,100,000 shares of common stock. The general purpose of the 2017 Equity Plan is to attract, motivate and retain selected employees and directors for the Company and its subsidiaries, to provide them with incentives and rewards for performance and to better align their interests with the interests of the Company’s stockholders. Unless otherwise extended, the 2017 Equity Plan terminates automatically on June 6, 2027. The table below summarizes changes to the issuances under the Company’s 2017 Equity Plan for the periods indicated, excluding awards granted under the Company’s subsidiary incentive plans that are exchangeable for Tiptree common stock:


2017 Equity Plan			Number of shares (1)











Available for issuance as of December 31, 2020			3,788,417
RSU, stock and option awards granted			(50,251)
Exchanged for vested subsidiary awards			(1,158,009)
Available for issuance as of September 30, 2021			2,580,157

(1) Excludes awards granted under the Company’s subsidiary incentive plans that are exchangeable for Tiptree common stock.

Restricted Stock Units and Stock Awards

Tiptree Corporate Incentive Plans

The Company values RSUs at their grant-date fair value as measured by Tiptree’s common stock price. Generally, the Tiptree RSUs vest and become non-forfeitable with respect to one-third of Tiptree shares granted on each of the first, second and third year anniversaries of the date of the grant, and expensed using the straight-line method over the requisite service period.

Stock Awards - Directors’ Compensation

The Company values the stock awards at their issuance-date fair value as measured by Tiptree’s common stock price. Upon issuance, the awards are deemed to be granted and immediately vested.

The following table presents changes to the issuances of RSUs and stock awards under the 2017 Equity Plan for the periods indicated:


	Number of shares issuable	Weighted average grant date fair value












Unvested units as of December 31, 2020	953,145	$	6.52
Granted	50,251	7.21
Vested	(404,384)	6.51

Unvested units as of September 30, 2021	599,012	$	6.59

The following tables present the detail of the granted and vested RSUs and stock awards for the periods indicated:


	Nine Months Ended September 30,		Nine Months Ended September 30,
Granted	2021	2020		Vested	2021	2020
Directors	50,251	56,485		Directors	50,251	56,485
Employees (1)	—	469,257		Employees	354,133	474,721
Total Granted	50,251	525,742		Total Vested	404,384	531,206
				Taxes	(34,828)	(53,438)

				Net Vested	369,556	477,768

(1) Includes 256,619 shares that vest ratably over three years and 212,638 shares that cliff vest in February 2023 for the nine months ended September 30, 2020.

Tiptree Senior Management Incentive Plan

On August 4, 2021, a total of 3,500,000 Performance Restricted Stock Units (PRSUs) were awarded to members of the Company’s senior management. The PRSUs have a 10-year term and are subject to the recipient’s continuous service and a market requirement. A portion of the PRSUs will generally vest upon the achievement of each of five Tiptree share price target milestones ranging from $15 to $60, adjusted for dividends paid, within five pre-established determination periods (subject to a catch-up vesting mechanism) occurring on the second, fourth, sixth, eighth and tenth anniversaries of the grant date.

Upon vesting, the Company will issue shares or if shares are not available under the 2017 Equity Plan, then the Company may in its sole discretion instead deliver cash equal to the fair market value of the underlying shares. As of September 30, 2021, the Company does not have sufficient shares available in the 2017 Equity Plan to settle the PRSUs awarded; as such, the PRSUs are classified as liability awards and will be remeasured at each reporting date until the date of settlement, and expensed using the straight-line method over the requisite service period.

The fair value of the PRSUs are estimated on the date of grant and at each subsequent reporting date using a Black-Scholes-Merton option pricing formula embedded within a Monte Carlo model used to simulate the future stock prices of the Company, which assumes that the market requirement is achieved. The historical volatility is computed based on historical daily returns of the Company’s stock price simulated over the performance period using a lookback period of 10 years. The valuation is done under a risk-neutral framework using the 10-year zero-coupon risk-free interest rate derived from the Treasury Constant Maturities yield curve on the reporting date. The current quarterly dividend rates in effect as of the reporting date are used to calculate a spot dividend yield for use in the model.

The following table presents the assumptions used to remeasure the fair value of the PRSUs as of September 30, 2021, which were granted in 2021 and classified as liability awards.



Valuation Input	Nine Months Ended September 30, 2021
		Assumption	Average
Historical volatility		34.29%	34.43%
Risk-free rate		1.55%	1.38%
Dividend yield		1.59%	1.40%
Cost of Equity		9.84%	9.88%
Expected term (years)		10	10

As of September 30, 2021, all PRSUs are unvested.

Subsidiary Incentive Plans

Certain of the Company’s subsidiaries have established incentive plans under which they are authorized to issue equity of those subsidiaries to certain of their employees. Such awards are accounted for as equity. These awards are subject to performance-vesting criteria based on the performance of the subsidiary (performance vesting awards) and time-vesting subject to continued employment (time vesting awards). Following the service period, such vested awards may be exchanged at fair market value, at the option of the holder, for Tiptree common stock under the 2017 Equity Plan. The service period for certain grants has been achieved and those vested subsidiary awards are currently eligible for exchange. The Company has the option, but not the obligation to settle the exchange right in cash.

The following table presents changes to the issuances of subsidiary awards under the subsidiary incentive plans for the periods indicated:


	Grant date fair value of equity shares issuable












Unvested balance as of December 31, 2020	$	4,305
Granted	1,278
Vested	(3,466)
Unvested balance as of September 30, 2021	$	2,117

During the nine months ended September 30, 2021, vested subsidiary awards were exchanged for 1,158,009 shares of Tiptree common stock and $50 in cash, for a total exchange award value of $12,168. Additionally, vested subsidiary units were repurchased under the subsidiary purchase plan for cash of $1,079. During the nine months ended September 30, 2020, vested subsidiary awards were exchanged for cash, for a total exchange award value of $1,807.

The net vested balance of subsidiary awards eligible for exchange as of September 30, 2021 translates to 1,875,284 shares of Tiptree common stock.

Stock Option Awards

Tiptree Corporate Incentive Plans

Option awards have been granted to the Executive Committee with an exercise price equal to the fair market value of our common stock on the date of grant. The option awards have a 10-year term and are subject to the recipient’s continuous service, a market requirement, and vest one third on each of the three, four, and five year anniversaries of the grant date. The market requirement is the Company's 20-day volume weighted average per share trading price plus actual cash dividends paid following issuance of the option that exceeds the book value on the option grant date. If the service condition is met, the full amount of the compensation expense will be recognized over the appropriate vesting period whether the market requirement is met or not. The options granted after 2017 include a retirement provision and are amortized over the lesser of the service condition or expected retirement date. There were no options granted during the nine months ended September 30, 2021. Book value targets for grants in 2020, 2019, 2018, 2017 and 2016 are $11.52, $10.79, $9.97, $10.14 and $8.96, respectively.

During the nine months ended September 30, 2021, book value targets for all outstanding options were achieved.

The fair value option grants are estimated on the date of grant using a Black-Scholes-Merton option pricing formula embedded within a Monte Carlo model used to simulate the future stock prices of the Company, which assumes that the market requirement is achieved. Historical volatility was computed based on historical daily returns of the Company’s stock between the grant date and July 1, 2013, the date of the business combination through which Tiptree became a public company. The valuation is done under a risk-neutral framework using the 10-year zero-coupon risk-free interest rate derived from the Treasury Constant Maturities yield curve on the grant date. The current quarterly dividend rates in effect as of the date of the grant are used to calculate a spot dividend yield as of the date of grant for use in the model.

There were no stock option awards granted in 2021. The following table presents the assumptions used to estimate the fair values of the stock options granted in 2020.

Valuation Input (1)

Nine Months Ended September 30, 2020

Assumption

Average

Historical volatility

27.60%

N/A

Risk-free rate

1.51%

N/A

Dividend yield

2.20%

N/A

Expected term (years)

7.0

(1) Not applicable for the nine months ended September 30, 2021 as there were no new grants during the period.

The following table presents the Company's stock option activity for the current period:


	Options outstanding	Weighted average exercise price (in dollars per stock option)		Weighted average grant date value (in dollars per stock option)		Options exercisable






Balance, December 31, 2020	1,715,619	$	6.49	$	2.29	—

Balance, September 30, 2021	1,715,619	$	6.49	$	2.29	712,542

Weighted average remaining contractual term at September 30, 2021 (in years)	6.4

Stock Based Compensation Expense

The following table presents total stock based compensation expense and the related income tax benefit recognized on the condensed consolidated statements of operations:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Employee compensation and benefits (1)	$	1,401	$	2,287	$	3,372	$	5,750
Director compensation	103		202		345		408
Income tax benefit	(316)		(538)		(781)		(1,330)
Net stock based compensation expense	$	1,188	$	1,951	$	2,936	$	4,828

(1) Includes $350 related to liability awards recorded in other liabilities as of September 30, 2021.

Additional information on total non-vested stock based compensation is as follows:



	As of September 30, 2021
	Stock options		Restricted stock awards and RSUs		Performance Restricted Stock Units
Unrecognized compensation cost related to non-vested awards	$	297	$	2,988	$	10,191
Weighted - average recognition period (in years)	1.02		0.68		3.23