Note 15 - Equity Based Compensation

9 Months Ended

Sep. 30, 2013

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Disclosure of Compensation Related Costs, Share-based Payments [Text Block]

15.     Equity Based Compensation

1997 Stock Compensation Plan

Stock option awards have been granted under the Palmetto Bancshares, Inc. 1997 Stock Compensation Plan (the “1997 Plan”). The 1997 Plan terminated in 2007 and no options have been granted under the 1997 Plan since then. However, the termination did not impact options previously granted under the 1997 Plan. All outstanding options expire at various dates through December 31, 2016 and all stock option awards granted have a five-year vesting term and an exercise period of ten years. The Board determined the terms of the options on the grant date, and the option exercise price was at least 100% of the fair value of the Company’s common stock as of the grant date. Options granted to teammates were “incentive stock options” within the meaning of Section 422 of the Internal Revenue Code, while options granted to non-teammates were “nonqualified stock options” (i.e. options that are not “incentive stock options”).

The following table summarizes stock option activity for the 1997 Plan at the dates and for the period indicated.

	Stock options outstanding			Weighted-average exercise price
Outstanding at December 31, 2012		11,953		$	92.89
Expired		(5,503	)		80.00
Outstanding at September 30, 2013		6,450			103.89

The following table summarizes information regarding stock options under the 1997 Plan that were outstanding and exercisable at September 30, 2013.

					Options outstanding and exercisable
Range of exercise prices					Number of stock options outstanding and exercisable		Weighted-average remaining contractual life (years)		Weighted-average exercise price
$	93.20	to	$	106.40		2,500		0.41	$	94.52
$	109.20	to	$	121.60		3,950		2.59		109.83
			Total			6,450		1.74		103.89

At September 30, 2013 and December 31, 2012, the fair value of the Company’s common stock did not exceed the exercise price of any options outstanding and exercisable under the 1997 Plan, therefore, the stock options had no intrinsic value.

2008 Restricted Stock Plan

Under the 2008 Restricted Stock Plan (the “2008 Plan”), 62,500 shares of common stock were reserved for issuance subject to its anti-dilution provisions. Forfeitures are returned to the available pool of common stock for future issuance. Generally, the recipient will have the right to receive dividends, if any, with respect to such shares of restricted stock, to vote such shares and to enjoy all other shareholder rights except that the Company will retain custody of the stock certificate, and the recipient may not sell, transfer, pledge or otherwise dispose of the restricted stock until the forfeiture restrictions have expired.

Shares of restricted stock granted to teammates and directors under the 2008 Plan are subject to vesting provisions based on continuous employment and service for a specified time period following the date of grant as follows:

	Vesting Period
Issued to directors in connection with annual retainer	Immediate
Issued to directors in connection with election to the Board	Length of Board term (currently 3 years)
Issued to teammates	5 years

The following table summarizes restricted stock activity at the dates and for the period indicated.

	Shares of restricted stock		Weighted-average grant date fair value per share
Total grants as of December 31, 2012, net of forfeitures		51,311	$	31.41
2013 Grants		11,073		9.68
Total grants as of September 30, 2013, net of forfeitures		62,384		27.55
Remaining shares available for grant at September 30, 2013		116

During the first quarter 2013, 8,407 shares of restricted stock with a total fair value of $70 thousand were granted to the non-management members of the Board of Directors as compensation for their annual Board retainers. 

Under the Company’s director compensation program, restricted stock awards are granted to directors upon initial appointment and re-election to the Board if a director purchases shares of the Company’s common stock on the open market during a specified period, in which case the director will receive a matching grant of restricted stock up to a maximum of $10 thousand in value. During the second quarter 2013, a total of 2,666 shares of restricted stock were awarded to two directors who were re-elected to the Board at the Annual Meeting of Shareholders on May 16, 2013.

There were no grants of restricted stock under the 2008 Plan during the third quarter 2013.

Of the 62,384 net restricted stock awards granted under the 2008 Plan, the following table summarizes vesting activity at the dates and for the period indicated.

	Shares of restricted stock
Nonvested at December 31, 2012		13,915
2013 Grants		11,073
2013 Vesting		(11,963	)
Nonvested at September 30, 2013		13,025

The weighted-average grant date fair value of restricted stock shares that vested during the nine months ended September 30, 2013 was $14.56 per share. The fair value of shares vested during the nine months ended September 30, 2013 was $118 thousand.

2011 Stock Incentive Plan

The 2011 Stock Incentive Plan, as amended, (the “2011 Plan”) was originally approved by shareholders at the 2011 Annual Meeting of Shareholders and allows the Board to grant a total of 700,000 stock options and / or restricted stock awards to teammates and directors. The 2011 Plan requires that stock options be issued with an exercise price at or above the fair market value per share of the Company’s common stock on the date of grant.

Under the 2011 Plan, the Board, at its discretion, determines the amount of equity awards to be granted, vesting conditions, type of award and any other terms and conditions. No options are exercisable more than 10 years after the date of grant. Generally, the recipient will have the right to receive dividends, if any, with respect to any shares of restricted stock granted, to vote such shares and to enjoy all other shareholder rights, except that the Company will retain custody of the stock certificate, and the recipient may not sell, transfer, pledge or otherwise dispose of the restricted stock until the forfeiture restrictions have expired. Forfeitures of restricted stock are returned to the available pool of common stock for future issuance.

The following table summarizes the 2011 Plan stock option and restricted stock information at the dates and for the periods indicated.

	Total shares			Stock options outstanding			Weighted-average exercise price		Shares of restricted stock			Weighted-average grant date fair value per share
2011 Grants		473,002			383,251		$	10.51		89,751		$	10.48
2012 Grants		8,020			-			-		8,020			6.50
Total grants as of December 31, 2012		481,022			383,251			10.51		97,771			10.15
2013 Grants		7,225			-			-		7,225			13.95
Total grants as of September 30, 2013		488,247			383,251			10.51		104,996			10.41
2013 Forfeitures		(575	)		-			-		(575	)		13.95
2013 Exercises					(11,250	)		11.00		-			-
Total granted, net as of September 30, 2013		487,672								104,421		$	10.40
Total outstanding as of September 30, 2013					372,001		$	10.50
Shares available for grant under the 2011 Plan		700,000
Remaining shares available for grant at September 30, 2013		212,328

The 2011 grants were made subject to time vesting restrictions that begin in 2014 and performance requirements including termination of the Bank’s Consent Order with the Supervisory Authorities (the “Consent Order”) and two consecutive quarters of net income. At December 31, 2012, the quarterly net income vesting condition was met, and the Consent Order was terminated on January 31, 2013. Therefore, the performance requirements are fully satisfied. Except for 11,250 stock options and 2,500 shares of restricted stock that vested in 2013 based on the time vesting restrictions, the awards will vest from 2014 to 2016.

During 2012, 8,020 shares of restricted stock were awarded to certain teammates in recognition of performance. These awards are subject to the same time and performance conditions described above and, assuming the time vesting conditions are met, will vest from 2015 to 2017.

During second quarter 2013, 7,225 shares of restricted stock were awarded to certain teammates in recognition of performance. These awards are subject to time vesting conditions and, assuming the time vesting conditions are met, will vest from 2014 to 2016.

On October 7, 2013, 1,586 shares of restricted stock were granted to certain teammates. These awards are subject to three year time vesting based on continued employment and will vest from 2014 to 2016.

The following table summarizes information regarding stock options under the 2011 Plan that were outstanding at September 30, 2013.

					Options outstanding
	Exercise price		Number of stock options		Weighted-average remaining contractual life (years)		Weighted-average exercise price		Value of outstanding in-the-money stock options
$	10.40			312,501		9.63	$	10.40	$	825,003
$	11.00			59,500		7.80		11.00		121,380
		Total		372,001		9.34		10.50	$	946,383

Of the 104,996 restricted stock awards granted under the 2011 Plan, the following table summarizes activity at the dates and for the period indicated.

	Shares of restricted stock
Nonvested at December 31, 2012		97,771
2013 Grants		7,225
2013 Forfeitures		(575	)
2013 Vesting		(2,500	)
Nonvested at September 30, 2013		101,921

The weighted-average grant date fair value of restricted stock awards that vested during the nine months ended September 30, 2013 was $11.00 per share. The value of shares vested during the nine months ended September 30, 2013 based on vesting date fair value totaled $33 thousand. No restricted stock awards vested during the three months ended September 30, 2013.

Compensation Expense Relating to Equity Based Compensation

The Company measures compensation expense for restricted stock and stock option awards at fair value and recognizes compensation expense in the Consolidated Statements of Income (Loss) over the service period for grants that have time / service-based vesting provisions. The fair value of restricted stock is determined based on the fair value of the common stock at the time of the grant. The Company estimates the grant date fair value of stock options granted using the Black-Scholes option-pricing model. The Black-Scholes option-pricing model estimates the fair value of a stock option based on inputs and assumptions such as the expected volatility of the Company’s stock price, option exercise price, the level of risk-free interest rates, dividend yields and expected option term.

The following table summarizes compensation expense for the 2008 Plan and the 2011 Plan charged against pre-tax income (loss) for the periods indicated (in thousands). All compensation expense relative to grants under the 1997 Plan had been fully recognized as of December 31, 2011.

	For the three months ended September 30,				For the nine months ended September 30,
	2013		2012		2013		2012
Compensation expense
2008 Plan	$	67	$	47	$	269	$	279
2011 Plan		195		193		626		573
Total compensation expense	$	262	$	240	$	895	$	852
Income tax benefit	$	-	$	-	$	-	$	-

At September 30, 2013, based on equity awards outstanding at that time, the total unrecognized pre-tax compensation expense related to unvested equity awards granted under the 2008 Plan and 2011 Plan was $199 thousand and $1.2 million, respectively. This expense is expected to be recognized through 2016 under the 2008 Plan and 2017 under the 2011 Plan.