Stock-Based Compensation

9 Months Ended

Sep. 30, 2017

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

Stock-Based Compensation

Note 10. 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 2017, the Company awarded 91,097 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 2017, the Company awarded senior officers a targeted number of 36,523 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 the three year period relative to a peer index. There are three performance metrics: 1) average annual earnings per share growth; 2) average annual total shareholder return; and 3) average annual return on average assets. Each metric is measured against companies in the KBW Regional Banking Index.

The Company has unvested restricted stock awards and PRSU grants of 227,324 shares at September 30, 2017. Unrecognized stock based compensation expense related to restricted stock awards totaled $9.3 million at September 30, 2017. At such date, the weighted-average period over which this unrecognized expense was expected to be recognized was 2.13 years. The following tables summarize the unvested restricted stock awards at September 30, 2017 and 2016.

	Nine Months Ended September 30,
	2017					2016
Perfomance Awards	Shares			Weighted-Average Grant Date Fair Value		Shares			Weighted-Average Grant Date Fair Value
Unvested at beginning		33,226		$	42.60		—		$	—
Issued		36,523			57.49		34,957			42.60
Forfeited		(3,097	)		42.60		(1,731	)		42.60
Vested		(4,314	)		54.92		—			—
Unvested at end		62,338		$	50.45		33,226		$	42.60

	Nine Months Ended September 30,
	2017					2016
Time Vested Awards	Shares			Weighted-Average Grant Date Fair Value		Shares			Weighted-Average Grant Date Fair Value
Unvested at beginning		262,966		$	33.60		369,093		$	24.43
Issued		91,097			62.70		104,775			46.39
Forfeited		(1,477	)		47.69		(7,815	)		40.17
Vested		(187,600	)		30.07		(195,738	)		22.53
Unvested at end		164,986		$	53.56		270,315		$	33.87

Below is a summary of stock option activity for the nine months ended September 30, 2017 and 2016. The information excludes restricted stock units and awards.

	Nine Months Ended September 30,
	2017					2016
	Shares			Weighted-Average Exercise Price		Shares			Weighted-Average Exercise Price
Beginning balance		216,859		$	8.80		298,740		$	9.97
Issued		—			—		3,000			49.49
Exercised		(64,420	)		7.46		(24,458	)		13.10
Forfeited		—			—		(1,100	)		15.48
Expired		—			—		(6,637	)		12.87
Ending balance		152,439		$	9.36		269,545		$	10.03

The following summarizes information about stock options outstanding at September 30, 2017. 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		101,075	$	5.76		1.26
$10.73	$11.40		41,389		10.84		0.77
$11.41	$24.86		3,225		22.79		6.02
$24.87	$49.91		6,750		47.83		8.37
			152,439	$	9.36		1.54

Exercisable:		Stock Options		Weighted-Average
Range of Exercise Prices		Exercisable		Exercise Price
$5.76	$10.72		66,377	$	5.76
$10.73	$11.40		41,389		10.84
$11.41	$24.86		2,065		23.18
$24.87	$49.91		750		49.49
			110,581	$	8.28

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, 2016 and 2015. There were no grants of stock options during the nine months ended September 30, 2017.

	Nine Months Ended		Years Ended December 31,
	September 30, 2017		2016			2015
Expected volatility		n/a		24.23	%		31.21	%
Weighted-Average volatility		n/a		24.23	%		31.21	%
Expected dividends		—		—			—
Expected term (in years)		n/a		7.0			7.0
Risk-free rate		n/a		1.37	%		1.64	%
Weighted-average fair value (grant date)		n/a	$	14.27		$	16.73

The total intrinsic value of outstanding stock options was $8.8 million at September 30, 2017. The total intrinsic value of stock options exercised during the nine months ended September 30, 2017 and 2016 was $3.5 million and $855 thousand, respectively. The total fair value of stock options vested was $50 thousand and $45 thousand for the nine months ended September 30, 2017 and 2016, respectively. Unrecognized stock-based compensation expense related to stock options totaled $90 thousand at September 30, 2017. At such date, the weighted-average period over which this unrecognized expense was expected to be recognized was 2.09 years.

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 September 30, 2017, the 2011 ESPP had 406,081 shares remaining for issuance.

Included in salaries and employee benefits in the accompanying Consolidated Statements of Operations, the Company recognized $4.2 million and $5.2 million in stock-based compensation expense for the nine months ended September 30, 2017 and 2016, respectively. Stock-based compensation expense is recognized ratably over the requisite service period for all awards.