XML 29 R19.htm IDEA: XBRL DOCUMENT v3.20.2
Share-Based Compensation
6 Months Ended
Jun. 30, 2020
2010 Equity Incentive Plan  
Share-Based Compensation  
Share-Based Compensation

(11)    Share-Based Compensation

On August 19, 2010, Territorial Bancorp Inc. adopted the 2010 Equity Incentive Plan, which provides for awards of stock options and restricted stock to key officers and outside directors. In accordance with the Compensation – Stock Compensation topic of the FASB ASC, the cost of the 2010 Equity Incentive Plan is based on the fair value of the awards on the grant date. The fair value of restricted stock is based on the closing price of the Company’s stock on the grant date. The fair value of stock options is estimated using a Black-Scholes option pricing model using assumptions for dividend yield, stock price volatility, risk-free interest rate and option term. These assumptions are based on our judgments regarding future events, are subjective in nature, and cannot be determined with precision. The cost of the awards will be recognized on a straight-line basis over the three, five- or six-year vesting period during which participants are required to provide services in exchange for the awards.

The Company recognized compensation expense, measured as the fair value of the share-based award on the date of grant, on a straight-line basis over the vesting period. Share-based compensation is recorded in the statement of income as a component of salaries and employee benefits with a corresponding increase in stockholders’ equity. The table below presents information on compensation expense and the related tax benefit for all share-based awards:

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 30,

 

June 30,

 

(In thousands)

 

2020

 

2019

 

2020

 

2019

 

Compensation expense

$

209

$

285

$

366

$

371

Income tax benefit

 

57

 

78

 

100

 

101

Shares of our common stock issued under the 2010 Equity Incentive Plan shall come from authorized shares. The maximum number of shares that will be awarded under the plan will be 1,862,637 shares.

Stock Options

The table below presents the stock option activity for the six months ended June 30, 2020 and 2019:

    

    

Weighted

    

    

Aggregate

 

Average

Remaining

Intrinsic

 

Exercise

Contractual

Value

 

Options

Price

Life (years)

(in thousands)

 

Options outstanding at December 31, 2019

 

116,409

$

17.53

 

0.72

$

1,562

Granted

 

 

 

 

Exercised

 

81,827

 

17.36

 

 

725

Forfeited

 

 

 

 

Expired

 

 

 

 

Options outstanding at June 30, 2020

34,582

$

17.92

 

0.35

$

203

Options outstanding at December 31, 2018

 

337,654

$

17.51

 

1.74

$

2,859

Granted

 

 

 

 

Exercised

 

182,170

 

17.36

 

 

2,031

Forfeited

 

 

 

 

Expired

 

 

 

 

Options outstanding at June 30, 2019

 

155,484

$

17.69

 

1.33

$

2,054

Options vested and exercisable at June 30, 2020

 

34,582

$

17.92

 

0.35

$

203

The following summarizes certain stock option activity of the Company:

 

 

For the Three Months Ended

 

For the Six Months Ended

 

 

 

June 30,

 

June 30,

 

(In thousands)

 

2020

 

2019

 

2020

 

2019

 

Intrinsic value of stock options exercised

$

437

$

1,243

$

725

$

2,031

Proceeds received from stock options exercised

 

1,029

 

1,868

 

1,421

 

3,162

Tax benefits realized from stock options exercised

 

105

 

254

 

158

 

425

Total fair value of stock options that vested

 

 

 

 

During the six months ended June 30, 2020, we issued 27,194 shares of common stock, net, in exchange for 81,827 stock options and 54,633 shares of common stock. Pursuant to the provisions of our equity incentive plan, optionees are permitted to use the value of our common stock they own in a net settlement to pay the exercise price of stock options.

As of June 30, 2020, the Company had no unrecognized compensation costs related to the stock option plan.

Restricted Stock

Restricted stock awards are accounted for as fixed grants using the fair value of the Company’s stock at the time of grant. Unvested restricted stock may not be disposed of or transferred during the vesting period. Restricted stock carries the right to receive dividends, although dividends attributable to restricted stock are retained by the Company until the shares vest, at which time they are paid to the award recipient. If performance based restricted stock awards do not achieve performance conditions, the restricted stock awards do not vest and the accrued dividends are forfeited.

The table below presents the restricted stock activity:

 

 

 

 

Weighted

 

 

 

 

 

Average Grant

 

 

 

Restricted

 

Date Fair

 

 

 

Stock

 

Value

 

Unvested at December 31, 2019

 

20,249

$

28.78

Granted

 

13,444

 

21.05

Vested

 

9,998

 

29.16

Forfeited

 

 

Unvested at June 30, 2020

 

23,695

$

24.24

Unvested at December 31, 2018

 

16,424

$

30.26

Granted

 

10,366

 

27.30

Vested

 

6,541

 

30.14

Forfeited

 

 

Unvested at June 30, 2019

 

20,249

$

28.78

During the six months ended June 30, 2020, the Company issued 13,444 shares of restricted stock to certain members of executive management under the 2019 Equity Incentive Plan. The fair value of the restricted stock is based on the value of the Company’s stock on the date of grant. Restricted stock will vest over three years from the date of grant.

As of June 30, 2020, the Company had $483,000 of unrecognized compensation costs related to restricted stock.

During the six months ended June 30, 2020, the Company issued 16,129 performance-based restricted stock units (PRSUs) to certain members of executive management under the 2019 Equity Incentive Plan. These PRSUs will vest in the first quarter of 2023 after our Compensation Committee determines whether a performance condition that compares the Company’s return on average equity to the SNL Bank Index is achieved. Depending on the Company’s performance, the actual number of these PRSUs that are issued at the end of the vesting period can vary between 0% and 150% of the target award. For the PRSUs, an estimate is made of the number of shares expected to vest based on the probability that the performance criteria will be achieved to determine the amount of compensation expense to be recognized.  This estimate is re-evaluated quarterly and total compensation expense is adjusted for any change in the current period.        

The table below presents the PRSUs that will vest on a performance condition:

 

 

Performance-

 

Based Restricted

 

 

Stock Units

 

Weighted

Based on a

Average Grant

Performance

Date Fair

 

 

Condition

 

Value

Unvested at December 31, 2019

 

35,976

$

29.16

Granted

 

16,129

 

21.05

Vested

 

7,680

 

29.53

Forfeited

 

3,840

 

29.53

Unvested at June 30, 2020

 

40,585

$

25.83

Unvested at December 31, 2018

 

23,538

$

30.14

Granted

 

12,438

 

27.30

Vested

 

 

Forfeited

 

 

Unvested at June 30, 2019

 

35,976

$

29.16

The fair value of these PRSUs is based on the fair value of the Company’s stock on the date of grant. As of June 30, 2020, the Company had $531,000 of unrecognized compensation costs related to these PRSUs. Performance will be measured over a three-year performance period and will be cliff vested.

During the six months ended June 30, 2020, the Company issued 4,032 of PRSUs to certain members of executive management under the 2019 Equity Incentive Plan. These PRSUs will vest in the first quarter of 2023 after our Compensation Committee determines whether a market condition that compares the Company’s total stock return to the SNL Bank Index is achieved. The number of shares that will be expensed will not be adjusted for performance. The fair value of these PRSUs is based on a Monte Carlo valuation of the Company’s stock on the date of grant. The assumptions which were used in the Monte Carlo valuation of the PRSUs are:

Grant date: March 12, 2020

Performance period: January 1, 2020 to December 31, 2022

2.80 year risk-free rate on grant date: 0.56%

December 31, 2019 closing price: $30.94

Closing stock price on the date of grant: $21.05

Annualized volatility (based on 2.82 year historical volatility as of the grant date): 18.02%

The table below presents the PRSUs that will vest on a market condition:

Performance-

Based Restricted

Monte Carlo

Stock Units

Valuation of

Based on a

the Company's

 

 

Market Condition

 

Stock

Unvested at December 31, 2019

 

8,994

$

25.74

Granted

 

4,032

 

22.16

Vested

 

1,197

 

24.44

Forfeited

 

1,682

 

24.44

Unvested at June 30, 2020

 

10,147

$

24.69

Unvested at December 31, 2018

 

5,884

$

26.42

Granted

 

3,110

 

24.45

Vested

 

 

Forfeited

 

 

Unvested at June 30, 2019

 

8,994

$

25.74

As of June 30, 2020, the Company had $104,000 of unrecognized compensation costs related to the PRSUs that are based on a market condition. Performance will be measured over a three-year performance period and will be cliff vested.