Share-Based Compensation

12 Months Ended

Dec. 31, 2018

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Note 22 – 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 759,375 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 759,375 for incentive stock options and to 379,687 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”) determined. 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 on May 6, 2010, the stockholders approved, an amendment to the 2003 Plan making an additional 885,937 common shares available for issuance. All share data has been adjusted for the 3:2 stock split on June 15, 2018 (and for four additional stock splits in 2003, 2011, 2012 and 2016 after the 2003 Plan was adopted).

A summary of option activity under the 2003 Plan as of December 31, 2018, 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		41,175		$	4.91
Exercised		(19,875	)		4.80
Outstanding, end of year		21,300			5.03		1.77	$	229,004
Exercisable, end of year		21,300			5.03		1.77		229,004

On June 18, 2013, the Board of Directors adopted the Horizon Bancorp 2013 Omnibus Equity Incentive Plan (“2013 Plan”), which was approved by the Company’s shareholders on May 8, 2014. Under the 2013 Plan, Horizon may issue up to 1,556,325 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 225,000 for incentive stock options and to 900,000 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 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. All share data has been adjusted for the 3:2 stock split on June 15, 2018 and November 14, 2016.

The restricted shares can vest over a period of time established by the Committee at the time of each grant, but the restricted shares already granted under the 2013 Plan generally vest at the end of each grant’s vesting period. 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 performance shares that are awarded become earned and vested based on the achievement of certain performance goals during a performance period as established by the Committee at the time of each grant. The performance goals are based on a comparison of the Company’s average performance over the performance period for the return on common equity, compounded annual growth rate of total assets, and return on average assets, all as relative to the average performance for publicly traded banks with total assets between $

billion and $

billion on the SNL Bank Index. Holders of performance share awards receive pass-through dividends but do not have any voting rights before the performance shares are earned and vested.

The options shares granted under the 2013 Plan vest at a rate designated per the individual agreements.

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:

	Years Ended December 31
	2018			2017			2016
Dividend yields		1.99	%		1.75	%		2.34	%
Volatility factors of expected market price of common stock		28.60	%		28.52	%		28.60	%
Risk-free interest rates		2.85	%		2.42	%		1.83	%
Expected life of options		8 years			8 years			8 years

A summary of option activity under the 2013 Plan as of December 31, 2018, 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		323,666		$	11.50
Granted		31,122			19.31
Exercised		(36,221	)		10.34
Forfeited		(11,250	)		15.60
Outstanding, end of year		307,317			12.28		6.89	$	1,077,096
Exercisable, end of year		191,410			10.67		6.19		977,748

The weighted average grant-date fair value of options granted during the years 2018, 2017 and 2016 was $5.54, $4.83 and $2.59.

A summary of the status of Horizon’s non-vested restricted and performance shares as of December 31, 2018 are presented below:

	Shares			Weighted Average Grant Date Fair Value
Non-vested, beginning of year		144,791		$	13.32
Vested		(43,519	)		10.59
Granted		75,266			20.13
Non-vested, end of year		176,538			16.90

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 2018 was $251,000 and the related tax benefit recognized was approximately $53,000. Total compensation cost recognized in the income statement for option-based payment arrangements during 2017 and 2016 was $325,000 and $324,000 and the related tax benefit recognized was $114,000 and $113,000, respectively.

Total compensation cost recognized in the income statement for restricted share and performance share based payment arrangements during 2018, 2017 and 2016 was $376,000, $135,000, and $284,000. The recognized tax benefit related thereto was approximately $79,000, $47,000, and $99,000 for the years ended December 31, 2018, 2017 and 2016.

Cash received from option exercise under all share-based payment arrangements for the years ended December 31, 2018, 2017 and 2016 was $493,000, $1.6 million, and $214,000. The actual tax benefit realized for the tax deductions from option exercise of the share-based payment arrangements totaled $213,000, $522,000, and $158,000, for the years ended December 31, 2018, 2017 and 2016.

As of December 31, 2018, there was $1.5 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 1.5 years. Under all plans, forfeitures of share-based compensation grants are recognized as they occur.

On December 19, 2017, the Board of Directors proposed adoption of the Amended and Restated 2013 Omnibus Equity Incentive Plan, primarily to allow awards of “Other Stock Based Awards,” which includes awards valued in whole or in part by reference to Horizon’s common shares. The Amended and Restated 2013 Omnibus Equity Incentive Plan was approved by the shareholders at the Annual Meeting held on May 3, 2018.