Note M—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 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 1,000,000 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 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 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 1,000,000 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 expire 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, 2015	2,602,000	$ 9.72	5.39
Granted	-	-	-	-
Exercised	(83,500)	7.66	-	-
Expired	(457,250)	15.08	-	-
Forfeited	(83,750)	9.20	-	-
Outstanding at December 31, 2015	1,977,500	$ 8.58	5.47	$ -
Exercisable at December 31, 2015	1,758,125	$ 8.48	5.29	$ -

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, 2015	148,381	$ 10.46	2.07
Granted	86,992	9.11	1.25
Vested	(49,460)	10.46
Forfeited	(17,868)	9.30
Outstanding at December 31, 2015	168,045	9.88	1.12

The Company granted 86,992 restricted stock units with a vesting period of two years at a fair value of $9.11 in 2015. There were no restricted stock units granted in 2014. The Company granted 197,481 restricted stock units with a vesting period of four years at a fair value of $10.46 in 2013.

A summary of the status of the Company’s non-vested options under the plans as of December 31, 2015, and changes during the year then ended, is presented below:


		Weighted-
		average
		grant-date
	Shares	fair value
Non-Vested at January 1, 2015	502,750	$ 4.72
Granted	-	-
Vested	(238,875)	4.48
Expired	-	-
Forfeited	(44,500)	4.81
Non-Vested at December 31, 2015	219,375	$ 4.91

The Company did not grant any common stock options in 2015. The Company granted 45,000 common stock options in 2014, with a vesting period of four years. The weighted-average fair value of the stock options issued was $4.16. 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. There were 132,960 options exercised and restricted stock units vested in 2015, 113,334 options exercised and restricted stock units vested in 2014 and 605,494 options exercised in 2013. The total intrinsic value of the options exercised and stock units vested in 2015, 2014 and 2013 was $455,000, $1.5 million and $3.0 million, respectively. The total fair value of options that vested during the year ended December 31, 2015 was $1.2 million.

As of December 31, 2015, there was a total of $1.4 million of unrecognized compensation cost related to unvested awards under share-based plans. This cost is expected to be recognized over a weighted average period of approximately one year. For the years ended December 31, 2015, 2014 and 2013 total compensation expense under share based payment arrangements was $2.0 million, $2.6 million and $3.2 million respectively and the related tax benefits recognized were $672,000, $915,000 and $1.1 million, respectively.

For the years ended December 31, 2015, 2014 and 2013, 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,
	2015	2014	2013
Risk-free interest rate	0.00%	2.36%	1.86%
Expected dividend yield	-	-	-
Expected volatility	0.00%	41.74%	49.71%-55.65%
Expected lives (years)	2.00	5.71	4.03-4.22

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, 2015 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.