Note 20 – Share-Based Compensation

On January 21, 2003, the Board of Directors adopted the Horizon Bancorp 2003 Omnibus Equity Incentive Plan (2003 Plan), which was approved by stockholders on May 8, 2003. Under the 2003 Plan, Horizon could issue up to 337,500 common shares, plus the number of shares that are tendered to or withheld by Horizon in connection with the exercise of options plus that number of shares that are purchased by Horizon with the cash proceeds received upon option exercises. The 2003 Plan limited the number of shares available to 337,500 for incentive stock options and to 168,750 for the grant of non-option awards. The shares available for issuance under the 2003 Plan could be divided among the various types of awards and among the participants as the Compensation Committee (Committee) determines. The Committee was authorized to grant any type of award to a participant that was consistent with the provisions of the 2003 Plan. Awards could consist of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock, performance units, performance shares or any combination of these awards. The Committee determined the provisions, terms and conditions of each award. The restricted shares vest over a period of time established by the committee at the time of each grant. Holders of restricted shares receive dividends and may vote the shares. The restricted shares are recorded at fair market value (on the date granted) as a separate component of stockholders’ equity. The cost of these shares is being amortized against earnings using the straight-line method over the vesting period. The options shares granted under the 2003 plan vest at a rate designated per the individual agreements. The restricted shares granted under the 2003 Plan vest at the end of each grant’s vesting period. On March 8, 2010, the Board of Directors adopted, and was approved by stockholders on May 6, 2010, an amendment to the 2003 Omnibus Equity Incentive Plan making an additional 393,750 common shares available for issuance.

A summary of option activity under the 2003 Plan as of December 31, 2013, and changes during the year then ended, is presented below:


	Shares			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term		Aggregate Intrinsic Value
Outstanding, beginning of year		104,947		$	11.14
Granted		—			—
Exercised		(13,500	)		10.10
Forfeited		—			—

Outstanding, end of year		91,447			11.29		5.44	$	1,283,619

Exercisable, end of year		56,832			11.22		4.27		801,761

On June 18, 2013, the Board of Directors adopted the Horizon Bancorp 2013 Omnibus Equity Incentive Plan (2013 Plan), which will presented to the Company’s shareholders for approval on May 8, 2014. Under the 2013 Plan, Horizon may issue up to 691,700 common shares, plus the number of shares that are tendered to or withheld by Horizon in connection with the exercise of options plus that number of shares that are purchased by Horizon with the cash proceeds received upon option exercises. The 2013 Plan limits the number of shares available to 100,000 for incentive stock options and to 400,000 for the grant of non-option awards. The shares available for issuance under the 2013 Plan may be divided among the various types of awards and among the participants as the Compensation Committee (Committee) determines. The Committee is authorized to grant any type of award to a participant that is consistent with the provisions of the 2013 Plan. Awards may consist of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock, performance units, performance shares or any combination of these awards. The Committee determines the provisions, terms and conditions of each award. The restricted shares vest over a period of time established by the committee at the time of each grant. Holders of restricted shares receive dividends and may vote the shares. The restricted shares are recorded at fair market value (on the date granted) as a separate component of stockholders’ equity. The cost of these shares is being amortized against earnings using the straight-line method over the vesting period. The options shares granted under the 2013 plan vest at a rate designated per the individual agreements. The restricted shares granted under the 2013 Plan vest at the end of each grant’s vesting period.

The fair value of options granted is estimated on the date of the grant using an option-pricing model with the following weighted-average assumptions:


December 31	2013			2012			2011
Dividend yields		1.98	%		2.56	%		2.77	%
Volatility factors of expected market price of common stock		29.75	%		29.47	%		29.89	%
Risk-free interest rates		2.16	%		1.84	%		1.91	%
Expected life of options		8 years			8 years			8 years

A summary of option activity under the 2013 Plan as of December 31, 2013, and changes during the year then ended, is presented below:


	Shares		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term
Outstanding, beginning of year		—	$	—
Granted		46,888		20.27
Exercised		—		—

Outstanding, end of year		46,888		20.27		9.47

Exercisable, end of year		—		—		—

The weighted average grant-date fair value of options granted during the year 2013, 2012 and 2011 was $5.74, $3.25 and $2.82.

A summary of the status of Horizon’s non-vested, restricted and performance shares as of December 31, 2013 is presented below:


	Shares		Weighted Average Grant Date Fair Value
Non-vested beginning of year		76,003	$	13.38
Vested		—
Granted		9,872		20.24
Forfeited		—		—

Non-vested, end of year		85,875		14.17

Grants vest at the end of three, four or five years of continuous employment.

Total compensation cost recognized in the income statement for option-based payment arrangements during 2013 was $48,000 and the related tax benefit recognized was approximately $19,000. Total compensation cost recognized in the income statement for option-based payment arrangements during 2012 and 2011 was $33,000 and $35,000 and the related tax benefit recognized was $13,000 and $14,000, respectively.

Total compensation cost recognized in the income statement for restricted share based payment arrangements during 2013, 2012 and 2011 was $288,000, $187,000, and $100,000. The recognized tax benefit related thereto was approximately $115,000, $75,000, and $40,000 for the years ended December 31, 2013, 2012 and 2011.

Cash received from option exercise under all share-based payment arrangements for the years ended December 31, 2013, 2012 and 2011 was $136,000, $195,000, and $55,000. The actual tax benefit realized for the tax deductions from option exercise of the share-based payment arrangements totaled $58,000, $30,000, and $9,000, for the years ended December 31, 2013, 2012 and 2011.

As of December 31, 2013, there was $1.0 million of total unrecognized compensation cost related to all non-vested share-based compensation arrangements granted under all of the plans. That cost is expected to be recognized over a weighted-average period of 3.4 years.