Share-based Incentive Plans

2009 Incentive Plan

On April 16, 2009, our shareholders approved the Southside Bancshares, Inc. 2009 Incentive Plan (the “2009 Incentive Plan”), which is a stock-based incentive compensation plan. A total of 1,407,103 shares of our common stock were reserved and available for issuance pursuant to awards granted under the 2009 Incentive Plan. Under the 2009 Incentive Plan, we were authorized to grant nonqualified stock options (“NQSOs”), restricted stock units (“RSUs”), or any combination thereof to certain officers. During the six months ended June 30, 2015, we granted RSUs and NQSOs pursuant to the 2009 Incentive Plan. During the six months ended June 30, 2014, there were no grants of RSUs or NQSOs pursuant to the 2009 Incentive Plan.

As of June 30, 2015, there were 622,484 unvested awards outstanding. For the three and six months ended June 30, 2015, there was share-based compensation expense of $294,000 and $567,000, respectively, with an associated income tax benefit for the three and six months of $103,000 and $198,000, respectively. As of June 30, 2014, there were 374,227 unvested awards outstanding. Share-based compensation expense for the three and six months ended June 30, 2014 was $291,000 and $577,000, respectively, with an associated income tax benefit for the three and six months of $102,000 and $202,000, respectively.

As of June 30, 2015 and 2014, there was $4.9 million and $2.5 million of unrecognized compensation cost, respectively, related to the unvested awards outstanding. The remaining cost at June 30, 2015 is expected to be recognized over a weighted-average period of 3.3 years.

The NQSOs have contractual terms of 10 years and vest in equal annual installments over three- and four-year periods.

The fair value of each RSU is the closing stock price on the date of grant. The RSUs vest in equal annual installments over three- and four-year periods.

Each award is evidenced by an award agreement that specifies the exercise price, if applicable, the duration of the award, the number of shares to which the award pertains, and such other provisions as the Board determines.

Shares issued in connection with stock compensation awards are issued from authorized shares and not from treasury shares. During the six months ended June 30, 2015 and 2014, there were 12,336 and 12,404 shares, respectively, issued in connection with stock compensation awards from available authorized shares.

The estimated weighted-average grant-date fair value per option and the underlying Black-Scholes option-pricing model assumptions for stock options granted during the six months ended June 30, 2015 are summarized in the following table:



		Six Months Ended
		June 30, 2015
Weighted-average grant date fair value per option		$6.29
Weighted-average assumptions:
Risk-free interest rates		2.01%
Expected dividend yield		3.24%
Expected volatility factors of the market price of Southside Bancshares common stock		30.91%
Expected option life (in years)		6.3

The following table presents activity related to our RSUs and NQSOs for the six months ended June 30, 2015.



			Restricted Stock Units Outstanding				Stock Options Outstanding
	Shares Available for Grant		Number of Shares		Weighted- Average Grant-Date Fair Value		Number of Shares		Weighted- Average Exercise Price		Weighted- Average Grant-Date Fair Value
Balance, January 1, 2015	821,604		31,753		$	21.75	419,334		$	19.88	$	6.00
Granted	(425,437	)	55,332		27.69		370,105		28.08		6.29
Stock options exercised	—		—		—		(9,351	)	18.04		5.39
Stock awards vested	—		(3,132	)	15.79		—		—		—
Forfeited	20,669		(2,821	)	25.24		(17,848	)	22.87		6.75
Canceled/expired	451		—		—		(451	)	24.62		7.78
Balance, June 30, 2015	417,287		81,132		$	25.91	761,789		$	23.81	$	6.13

Other information regarding options outstanding and exercisable as of June 30, 2015 is as follows:



				Options Outstanding				Options Exercisable
Range of Exercise Prices				Number of Shares	Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life in Years	Number of Shares	Weighted- Average Exercise Price
$	15.79	-	$28.51	761,789	$	23.81	8.54	220,437	$	18.14
Total				761,789	$	23.81	8.54	220,437	$	18.14

The total intrinsic value (i.e., the amount by which the fair value of the underlying common stock exceeds the exercise price of a stock option) of outstanding stock options and exercisable stock options was $4.1 million and $2.4 million at June 30, 2015, respectively.

Cash received from stock options exercised for the six months ended June 30, 2015 and 2014 was $169,000 and $86,000, respectively. The total intrinsic value related to stock options exercised during the six months ended June 30, 2015 and 2014, was approximately $88,000 and $50,000, respectively.