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Share-Based Compensation Plans
 12 Months Ended
Dec. 31, 2019
Share-based Payment Arrangement [Abstract]  
Share-Based Compensation Plans SHARE-BASED COMPENSATION PLANS
Summary
During 2019, the shareholders of Customers Bancorp approved the 2019 Plan, during 2010, the shareholders of Customers Bancorp approved the 2010 Plan, and during 2012, the shareholders of Customers Bancorp approved the 2004 Plan. The 2019 Plan was approved by the shareholders of Customers at its 2019 Annual Meeting of Shareholders on May 30, 2019 and allows for the issuance of 1,500,000 shares. The purpose of these plans is to promote the success and enhance the value of Customers Bancorp by linking the personal interests of the members of the Board of Directors, team members, officers and executives of Customers to those of the shareholders of Customers and by providing such individuals with an incentive for outstanding performance in order to generate superior returns to shareholders of Customers. The 2019 Plan, 2010 Plan and 2004 Plan are intended to provide flexibility to Customers in its ability to motivate, attract and retain the services of members of the Board of Directors, team members, officers and executives of Customers. Stock options and restricted stock units normally vest on the third or fifth anniversary of the grant date provided the grantee remains employed by Customers or continues to serve on the Board. With respect to certain stock options granted under the 2010 Plan, vested options shall be exercisable only when Customers' fully diluted tangible book value will have increased by 50% from the date of grant. Share-based awards generally provide for accelerated vesting if there is a change in control (as defined in the Plans). No stock options may be exercisable for more than 10 years from the date of grant.
The 2019, 2010 and 2004 Plans are administered by the Compensation Committee of the Board of Directors. The 2019 Plan provides for the grant of options, some or all of which may be structured to qualify as Incentive Stock Options if granted to team members, stock appreciation rights, restricted stock, restricted stock units and unrestricted stock to team members, officers, executives, members of the Board of Directors, consultants, and advisors. The maximum number of shares of common stock which may be issued under the 2019 Plan is 1,500,000 shares. The 2010 Plan provides exclusively for the grant of stock options, some or all of which may be structured to qualify as Incentive Stock Options, to team members, officers and executives. The maximum number of shares of common stock which may be issued under the 2010 Plan is 3,666,667 shares. The 2004 Plan provides for the grant of options, some or all of which may be structured to qualify as Incentive Stock Options if granted to team members, stock appreciation rights, restricted stock, restricted stock units and unrestricted stock to team members, officers, executives and members of the Board of Directors. The maximum number of shares of common stock which may be issued under the 2004 Plan is 2,750,000 shares.
On January 1, 2011, Customers initiated a BRRP. This is a restricted stock unit plan. Team members eligible to participate in the BRRP included the CEO and other senior management and highly compensated team members as determined by the Compensation Committee at its sole discretion. Under the BRRP, a participant elected to defer not less than 25%, nor more than 50%, of his or her bonus payable with respect to each year of participation. Shares of common stock having a value equal to the portion of the bonus deferred by a participant were allocated to an annual deferral account, and a matching amount equal to an identical number of shares of common stock was also allocated to the annual deferral account. A participant becomes 100% vested in the annual deferral account on the fifth anniversary date of the initial funding of the account, provided he or she remains continuously employed by Customers from the date of funding to the anniversary date. Customers discontinued the BRRP in 2019, upon receipt of shareholder approval of the 2019 Plan.
Vesting is accelerated in the event of involuntary termination other than for cause, retirement at or after age 65, death, termination on account of disability or a change in control of Customers. Participants were first eligible to make elections under the BRRP with respect to their bonuses for 2011, which were payable in first quarter 2012. The BRRP did not provide for a specific number of shares to be reserved; by its terms, the award of restricted stock units under this plan is limited by the amount of cash bonuses paid to the participants in the plan. At December 31, 2019, non-vested restricted stock units outstanding under this plan totaled 190,340.
At December 31, 2019, the aggregate number of shares of common stock available for grant under all share-based compensation plans was 2,052,597 shares.
Share-based-compensation expense relating to stock options and restricted stock units is recognized on a straight-line basis over the vesting periods of the awards and is a component of salaries and employee benefits expense. Total share-based- compensation expense for 2019, 2018 and 2017 was $8.9 million, $8.6 million and $6.1 million, respectively. At December 31, 2019, there was $16.4 million of unrecognized compensation cost related to all non-vested share-based compensation awards. This cost is expected to be recognized through December 2024.
In 2014, the shareholders of Customers Bancorp approved an ESPP. The ESPP is intended to encourage team member participation in the ownership and economic progress of Customers. This plan is intended to qualify as an ESPP within the meaning of the Internal Revenue Code and is administered by the Compensation Committee of the Board of Directors.
Under the ESPP, team members may elect to purchase shares of Customers' common stock through payroll deductions. Because the purchase price under the plan is 85% of the fair market value of a share of common stock on the first day of each quarterly subscription period (a 15% discount to the market price), Customers' ESPP is considered to be a compensatory plan under current accounting guidance. Therefore, the entire amount of the discount is recognizable compensation expense. ESPP expense for 2019, 2018 and 2017 was $170 thousand, $141 thousand, and $132 thousand, respectively.
Stock Options
Customers estimated the fair value of each option on the date of grant generally using the Black-Scholes option pricing model. The risk-free interest rate was based upon the zero-coupon Treasury rates in effect on the grant date of the options based on the expected life of the option. Expected volatility was based upon limited historical information because Customers' common stock has only been traded since February 2012. Expected life was management’s estimate which took into consideration the vesting requirement, generally three or five years.
During 2019, options to purchase an aggregate of 577,230 shares of Customers Bancorp voting common stock were granted to certain officers and team members. The exercise price for the options granted was equal to the closing price of Customers Bancorp's voting common stock on the date of grant. The options issued are subject to a three-year waterfall vesting and expire after ten years.
The following table presents the weighted-average assumptions used and the resulting weighted-average fair value of each option granted for the periods presented.
201920182017
Weighted-average risk-free interest rate1.69 %2.87 %2.35 %
Expected dividend yield— %— %— %
Weighted-average expected volatility29.92 %25.47 %25.05 %
Weighted-average expected life (in years)7.007.007.00
Weighted-average fair value of each option granted$5.56  $10.05  $8.68  
The following table summarizes stock option activity for the year ended December 31, 2019:
Number
of Shares
Weighted-
Average
Exercise
Price
Weighted-
Average
Remaining
Contractual
Term
in Years
Aggregate
Intrinsic
Value
(dollars in thousands, except weighted-average exercise price)
Outstanding, December 31, 20182,520,526  $22.13  
Granted577,230  19.05  
Exercised(82,500) 16.79  $341  
Expired(90,000) 25.19  
Forfeited(95,008) 21.19  
Outstanding, December 31, 20192,830,248  $21.59  6.45$9,212  
Exercisable at December 31, 2019766,739  $15.52  3.46$6,390  
Cash received from the exercise of the stock options during the year ended December 31, 2019 was $1.4 million. The tax liability resulting from option exercises totaled $0.2 million in 2019.
A summary of the status of Customers' non-vested options at December 31, 2019, and changes during the year ended December 31, 2019 was as follows:
Options
Weighted-
Average
exercise price
Non-vested at December 31, 20181,671,223  $25.10  
Granted577,230  19.05  
Vested(89,936) 19.33  
Forfeited(95,008) 21.19  
Non-vested at December 31, 20192,063,509  23.85  
Restricted Stock Units
The fair value of restricted stock units granted under the 2019 and 2004 Plans is generally determined based on the closing market price of Customers' common stock on the date of grant. The fair value of restricted stock units granted under the BRRP was measured as of the date on which such portion of the bonus would have been paid had the deferral not been elected.
Beginning in 2018, the Compensation Committee recommended and the Board of Directors approved a new long-term incentive compensation plan which incorporates performance metrics into the restricted stock awards for certain of Customers' key officers. Specifically, 40% of the restricted stock units granted as long term incentive compensation will vest ratably over three years. The remaining 60% will vest upon Customers meeting certain performance metrics, including total shareholder return, return on average common equity, and average NPAs to total assets over a three-year period relative to the performance of its peer group. The performance conditions are considered probable.
There were 177,627 restricted stock units granted during the year ended December 31, 2019. Of the aggregate restricted stock units granted, 5,447 were granted under the BRRP and are subject to five-year cliff vesting. The remaining 172,180 units were granted under either the 2004 Plan or the 2019 Plan and are subject to either a three-year waterfall vesting (with one third of the amount vesting annually) or a three-year cliff vesting, with 48,142 of those units also subject to the performance metrics described above.
The table below presents the status of the restricted stock units at December 31, 2019, and changes during the year ended December 31, 2019:
Restricted
Stock Units
Weighted-
Average Grant-
Date Fair Value
Outstanding and unvested at December 31, 2018884,659  $23.99  
Granted177,627  20.27  
Vested(281,905) 23.22  
Forfeited(62,700) 23.25  
Outstanding and unvested at December 31, 2019717,681  23.43  
Customers has a policy that permits its directors to elect to receive shares of common stock in lieu of their cash retainers. During the year ended December 31, 2019, Customers issued 37,467 shares of common stock with a fair value of $0.8 million to the directors as compensation for their services. The fair values were generally determined based on the closing price of the common stock the day before the shares were issued.