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Stock-Based Compensation

12 Months Ended

Dec. 31, 2018

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

Stock-Based Compensation

Note 17 – Stock-Based Compensation

The Company maintains the 2016 Stock Plan (“2016 Plan”), the 2006 Stock Plan (“2006 Plan”) and the 2011 Employee Stock Purchase Plan (“2011 ESPP”).

In connection with the acquisition of Virginia Heritage, the Company assumed the Virginia Heritage 2006 Stock Option Plan and the 2010 Long Term Incentive Plan (the “Virginia Heritage Plans”).

No additional options may be granted under the 2006 Plan or the Virginia Heritage Plans.

The Company adopted the 2016 Plan upon approval by the shareholders at the 2016 Annual Meeting held on May 12, 2016. The 2016 Plan provides directors and selected employees of the Bank, the Company and their affiliates with the opportunity to acquire shares of stock, through awards of options, time vested restricted stock, performance-based restricted stock and stock appreciation rights. Under the 2016 Plan, 1,000,000 shares of common stock were initially reserved for issuance.

For awards that are service based, compensation expense is being recognized over the service (vesting) period based on fair value, which for stock option grants is computed using the Black-Scholes model. For restricted stock awards granted under the 2006 plan, fair value is based on the average of the high and low stock price of the Company’s shares on the date of grant. For restricted stock awards granted under the 2016 plan, fair value is based on the Company’s closing price on the date of grant. For awards that are performance-based, compensation expense is recorded based on the probability of achievement of the goals underlying the grant.

In February 2018, the Company awarded 94,344 shares of time vested restricted stock to senior officers, directors, and certain employees. The shares vest in three substantially equal installments beginning on the first anniversary of the date of grant.

In February 2018, the Company awarded senior officers a targeted number of 42,533 performance vested restricted stock units (PRSUs). The vesting of PRSUs is 100% after three years with payouts based on threshold, target or maximum average performance targets over a three year period. There are two performance metrics: 1) average annual earnings per share growth; and 2) average annual return on average assets. Average annual return on average assets is measured against peer companies in the KBW Regional Banking Index. Average annual earnings per share growth is measured compared to the Company’s budget.

The Company has unvested restricted stock awards and PRSU grants of 272,679 shares at December 31, 2018. Unrecognized stock based compensation expense related to restricted stock awards and PRSU grants totaled $8.5 million at December 31, 2018. At such date, the weighted-average period over which this unrecognized expense was expected to be recognized was 1.74 years.

The following tables summarize the unvested restricted stock awards at December 31, 2018 and 2017.

		2018								2017
Perfomance Awards		Shares				Weighted-Average Grant Date Fair Value				Shares				Weighted-Average Grant Date Fair Value
Unvested at beginning			62,338			$	50.45				33,226			$	42.60
Issued			42,533				60.45				36,523				57.49
Forfeited			(5,913	)			50.28				(2,520	)			41.93
Vested			—				—				(4,891	)			54.70
Unvested at end			98,958			$	54.76				62,338			$	50.45

		Year Ended December 31,
		2018								2017
Time Vested Awards		Shares				Weighted-Average Grant Date Fair Value				Shares				Weighted-Average Grant Date Fair Value
Unvested at beginning			164,043			$	53.57				262,966			$	33.60
Issued			94,344				60.45				91,097				62.70
Forfeited			(7,132	)			56.48				(2,360	)			49.52
Vested			(77,534	)			49.67				(187,660	)			30.07
Unvested at end			173,721			$	58.93				164,043			$	53.57

Below is a summary of stock option activity for the twelve months ended December 31, 2018, 2017 and 2016. The information excludes restricted stock units and awards.

		Year Ended December 31,
		2018								2017								2016
		Shares				Weighted-Average Exercise Price				Shares				Weighted-Average Exercise Price				Shares				Weighted-Average Exercise Price
Beginning balance			143,224			$	9.13				216,859			$	8.80				298,740			$	9.97
Issued			—				—				—				—				3,000				49.49
Exercised			(108,201	)			7.17				(72,535	)			8.19				(77,144	)			14.48
Forfeited			(900	)			34.47				—				—				(1,100	)			15.48
Expired			—				—				(1,100	)			5.76				(6,637	)			12.87
Ending balance			34,123			$	14.69				143,224			$	9.13				216,859			$	8.80

The following summarizes information about stock options outstanding at December 31, 2018. The information excludes restricted stock units and awards.

												Weighted-Average
Outstanding:				Stock Options				Weighted-Average				Remaining
Range of Exercise Prices				Outstanding				Exercise Price				Contractual Life
$5.76		$10.72			22,024			$	5.76				0.02
$10.73		$11.40			5,089				11.17				2.88
$11.41		$24.86			660				20.03				4.06
$24.87		$49.91			6,350				47.91				3.66
					34,123			$	14.69				1.20

Exercisable:				Stock Options				Weighted-Average
Range of Exercise Prices				Exercisable				Exercise Price
$5.76		$10.72			4,675			$	5.76
$10.73		$11.40			5,089				11.17
$11.41		$24.86			660				20.03
$24.87		$49.91			4,850				47.42
					15,274			$	21.41

The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option pricing model with the assumptions as shown in the table below used for grants during the years ended December 31, 2018, 2017 and 2016. There were no grants of stock options during the year ended December 31, 2018.

Years Ended December 31,

2018

2017

2016

Expected volatility

n/a

n/a

24.23

%

Weighted-Average volatility

n/a

n/a

24.23

%

Expected dividends

—

—

—

Expected term (in years)

n/a

n/a

7.0

Risk-free rate

n/a

n/a

1.37

%

Weighted-average fair value (grant date)

n/a

n/a

$

14.27

The total intrinsic value of outstanding stock options was $1.2 million and $7.0 million, respectively, at December 31, 2018 and 2017. The total fair value of stock options vested was $80 thousand, $71 thousand and $66 thousand, for 2018, 2017 and 2016, respectively. Unrecognized stock-based compensation expense related to stock options totaled $17 thousand at December 31, 2018. At such date, the weighted-average period over which this unrecognized expense was expected to be recognized was 1.54 years.

Cash proceeds, tax benefits and intrinsic value related to total stock options exercised is as follows:

		Years Ended December 31,
(dollars in thousands)		2018				2017				2016
Proceeds from stock options exercised		$	776			$	372			$	955
Tax benefits realized from stock compensation			5				99				400
Intrinsic value of stock options exercised			4,958				3,888				2,824

Approved by shareholders in May 2011, the 2011 ESPP reserved 550,000 shares of common stock (as adjusted for stock dividends) for issuance to employees. Whole shares are sold to participants in the plan at 85% of the lower of the stock price at the beginning or end of each quarterly offering period. The 2011 ESPP is available to all eligible employees who have completed at least one year of continuous employment, work at least 20 hours per week and at least five months a year. Participants may contribute a minimum of $10 per pay period to a maximum of $6,250 per offering period or $25,000 annually (not to exceed more than 10% of compensation per pay period). At December 31, 2018, the 2011 ESPP had 387,805 shares reserved for issuance.

Included in salaries and employee benefits in the accompanying Consolidated Statements of Operations, the Company recognized $6.5 million, $5.6 million and $6.9 million in stock-based compensation expense for 2018, 2017 and 2016, respectively. Stock-based compensation expense is recognized ratably over the requisite service period for all awards.