Note L—Stock-Based Compensation

In May 2013, the Company adopted a stock option and equity plan (the 2013 Plan). Employees and directors of the Company and the Bank and consultants (with restrictions) are eligible to participate in the 2013 plan. The option term may not exceed 10 years from the date of the grant. An employee or consultant who possesses more than 10 percent of voting power of all classes of stock of the Company, or any parent or subsidiary, may not have options with terms exceeding 5 years from the date of grant. An aggregate of 2,200,000 shares of common stock were reserved for issuance by the 2013 plan.

In May 2011, the Company adopted a Stock Option and Equity Plan (the 2011 Plan). Employees and directors of the Company and the Bank and consultants (with restrictions) are eligible to participate in the 2011 Plan. The option term may not exceed 10 years from the date of the grant. An employee or consultant who possesses more than 10 percent of voting power of all classes of stock of the Company, or any parent or subsidiary, may not have options with terms exceeding 5 years from the date of grant. An aggregate of 1,400,000 shares of common stock were reserved for issuance by the 2011 plan.

In June 2005, the Company adopted an omnibus equity compensation plan (the 2005 plan). Employees and directors of the Company and the Bank are eligible to participate in the 2005 Plan. An aggregate of 1,000,000 shares of common stock were reserved for issuance by the 2005 plan. Options granted under the 2005 plan expire on the tenth anniversary of their grant.

In December 2003, the Bank adopted a stock option plan (the 2003 plan). Employees and directors of the Company and the Bank were eligible to participate in the 2003 plan. An aggregate of 760,000 shares of common stock for the Bank had been reserved. Options expire on the tenth anniversary of their grant. Under the 2003 plan, 501,000 options were granted. As a result of the reorganization of the Company and the Bank, the Bank’s plan terminated and the options theretofore granted under the Bank’s plan were converted into options to purchase 576,101 shares of the Company’s common stock.

In October 1999, the Company adopted a stock option plan (the 1999 Plan). Employees and directors of the Company and the Bank were eligible to participate in the 1999 Plan. An aggregate of 1,000,000 shares of common stock were reserved under the 1999 Plan, with no more than 75,000 shares being issuable to non-employee directors. Options vested over four years and expired on the tenth anniversary of the grant.

A summary of the status of the Company’s equity compensation plans is presented below.


			Weighted-
			average
		Weighted	remaining
		average	contractual	Aggregate
		exercise	term	intrinsic
	Shares	price	(years)	value
	(in thousands except per share data)

Outstanding at January 1, 2013	3,045,493	$ 9.90
Granted	215,000	10.46	-	-
Exercised	(605,494)	10.73	-	-
Expired	-	-	-	-
Forfeited	(34,125)	14.07	-	-
Outstanding at December 31, 2013	2,620,874	$ 9.70	6.32	$ -
Exercisable at December 31, 2013	1,623,749	$ 10.32	5.40	$ 12,348,577

A summary of the Company’s restricted stock units is presented below:


			Average
		Weighted	remaining
		average	contractual
		exercise	term
	Shares	price	(years)
Outstanding at January 1, 2013	-
Granted	197,841	$ 10.46	3.07
Vested	-	-	-
Forfeited	-	-	-
Vested at December 31, 2013	197,841

The Company granted 197,481 restricted stock units with a vesting period of four years at a fair value of $10.46 in 2013. There were no restricted stock units granted in 2012 or 2011.

A summary of the status of the Company’s non-vested options under the plans as of December 31, 2013, and changes during the year then ended, is presented below:


		Weighted-
		average
		grant-date
	Shares	fair value
Non-Vested at January 1, 2013	1,302,000	$ 4.66
Granted	215,000	4.85
Vested	(497,750)	4.65
Expired	-	-
Forfeited	(22,125)	4.70
Non-Vested at December 31, 2013	997,125	$ 4.71

The Company granted 215,000 common stock options in 2013, 35,000 with a vesting period of one year and 180,000 with a vesting period of four years. The weighted-average fair value of the stock options issued was $4.85. The Company granted 500,000 common stock options in 2012, 40,000 with a vesting period of one year and 460,000 with a vesting period of four years. The weighted-average fair value of the stock options issued was $5.06. The Company granted 510,000 common stock options in 2011, 40,000 with a vesting period of one year and 470,000 with a vesting period of four years. The weighted-average fair value of the stock options issued was $3.62. There were 605,494 options exercised in 2013 and 50,374 options exercised in 2012. The total intrinsic value of the options exercised in 2013 and 2012 was $3.0 million and $116,000, respectively. There were no options exercised in 2011. The total fair value of options that vested during the year ended December 31, 2013 was $2.3 million.

As of December 31, 2013, there was a total of $5.1 million of unrecognized compensation cost related to non-vested awards under share-based plans. This cost is expected to be recognized over a weighted average period of 1.5 years. For the years ended December 31, 2013, 2012 and 2011 total compensation expense under share based payment arrangements was $3.2 million, $2.6 million and $1.8 million respectively and the related tax benefits recognized were $1.1 million, $910,000 and $612,000, respectively.

For the years ended December 31, 2013, 2012 and 2011, the Company estimated the fair value of each grant on the date of grant using the Black-Scholes options pricing model with the following weighted average assumptions:


	December 31,
	2013	2012	2011
Risk-free interest rate	1.86%	1.97%	2.19%
Expected dividend yield	-	-	-
Expected volatility	55.65%	72.90%	57.58%
Expected lives (years)	4.19	4.83	5.47

Expected volatility is based on the historical volatility of the Company’s stock and peer group comparisons over the expected life of the grant. The risk-free rate for periods within the expected life of the option is based on the U.S. Treasury strip rate in effect at the time of the grant. The life of the option is based on historical factors which include the contractual term, vesting period, exercise behavior and employee terminations. In accordance with the ASC 718, Stock Based Compensation, stock based compensation expense for the year ended December 31, 2013 is based on awards that are ultimately expected to vest and has been reduced for estimated forfeitures. The Company estimates forfeitures using historical data based upon the groups identified by management.