Note 16 - Equity Based Compensation

12 Months Ended

Dec. 31, 2014

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

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

16. 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 January 16, 2017 and all stock option awards granted have a five-year vesting term and an exercise period of 10 years. The Board of Directors 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 individuals other than 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 periods indicated.

	Stock options outstanding			Weighted- average exercise price
Outstanding, December 31, 2011		18,703		$	93.65
Forfeited		(6,750	)		94.98
Outstanding, December 31, 2012		11,953			92.89
Expired		(5,503	)		80.00
Outstanding, December 31, 2013		6,450			103.89
Forfeited		(1,250	)		109.20
Expired		(2,250	)		93.20
Outstanding, December 31, 2014		2,950			109.80

The following table summarizes information regarding stock options under the 1997 Plan that were outstanding and exercisable at December 31, 2014.

Weighted-average exercise price		Number of stock options outstanding and exercisable		Weighted-average remaining contractual life (years)
$	106.40		250		0.05
	109.20		2,500		1.42
	121.60		200		2.05
Total			2,950		1.35

At December 31, 2014 and 2013, 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 and, 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.

Prior to 2011, restricted stock granted to directors under the 2008 Plan generally had a five-year vesting period. Beginning in 2011, with the exception of annual retainer grants that vest immediately, restricted stock granted to directors under the 2008 Plan generally had a three-year vesting period designed to coincide with director service terms. Beginning in 2012, restricted stock awarded to directors upon initial appointment and reelection to the Board of Directors continued to be granted with vesting periods to coincide with director service terms but were changed to require a director to purchase shares of the Company’s common stock on the open market to be eligible to receive a matching grant of restricted stock awards. The matching grants at initial appointment and reelection are capped at an economic value of $10 thousand.

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 initial appointment or re-election to the Board of Directors	Length of Board of Directors term (currently 3 years)
Issued to teammates	5 years

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

	Shares of restricted stock			Weighted- average grant date fair value per share
Granted, net of forfeitures, December 31, 2011		31,696		$	49.38
Grants		19,967			5.51
Forfeited		(350	)		168.00
Granted, net of forfeitures, December 31, 2012		51,313			31.50
Grants		11,073			9.68
Granted, net of forfeitures, December 31, 2013		62,386			27.63
Grants		-			-
Granted, net of forfeitures, December 31, 2014		62,386			27.63
Remaining shares available for grant, December 31, 2013 and 2014		114

There were no grants or forfeitures of restricted stock under the Company’s 2008 Plan during the year ended December 31, 2014.

Of the 62,386 net restricted stock awards granted under the 2008 Plan, the following table summarizes vesting status and activity at the dates and for the period indicated.

	Unvested			Vested		Total granted, net of forfeitures
Balance, December 31, 2013		11,247			51,139		62,386
Vested		(5,180	)		5,180		-
Balance, December 31, 2014		6,067			56,319		62,386

The weighted-average grant date fair value of restricted stock awards that vested during the year ended December 31, 2014 was $23.95 per share. The fair value of shares vested during the year ended December 31, 2014 based on vesting date fair value totaled $74 thousand.

2011 Stock Incentive Plan

Under the 2011 Stock Incentive Plan, as amended (the “2011 Plan”), the Board of Directors may grant a total of 700,000 of various types of equity awards (including 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 of Directors, 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 stock option and restricted stock information for the 2011 Plan at the dates and for the periods indicated.

	Total shares			Stock options outstanding			Weighted- average exercise price per share		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
2013 Grants		8,811			-			-		8,811			13.70
2013 Forfeitures		(575	)		-			-		(575	)		13.95
2013 Exercises		-			(11,250	)		11.00		-			-
2014 Grants		57,351			30,000			15.97		27,351			15.15
2014 Forfeitures		(625	)		-			-		(625	)		6.50
Granted, net of forfeitures, December 31, 2014		545,984								132,733
Outstanding, December 31, 2014					402,001			10.90
Total shares available for grant under the 2011 Plan		700,000
Remaining shares available for grant, December 31, 2014		154,016

The 2011 grants were made subject to time vesting restrictions that began in 2014 and performance requirements including termination of the Bank’s Consent Order with the Supervisory Authorities 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 30, 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 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 2013, 8,811 shares of restricted stock were awarded to certain teammates in recognition of performance and upon initial employment. These awards are subject to time vesting conditions and, assuming the time vesting conditions are met, vest from 2014 to 2016.

During 2014, 5,404 shares of restricted stock with a total grant date fair value of $70 thousand were granted to the non-management members of the Board of Directors as compensation for their annual Board retainers and 2,547 shares of restricted stock were granted to certain directors re-elected to the Board in 2014. The 2,547 shares of restricted stock are subject to time vesting conditions and, assuming the time vesting conditions are met, will vest from 2015 to 2017. In addition, during 2014, 19,400 shares of restricted stock and 30,000 stock options were awarded to certain teammates in recognition of performance and/or upon initial employment. These grants are subject to time vesting conditions. Assuming the time vesting conditions are met, 2,500 shares of the restricted stock awarded will vest from 2014 to 2017, and 16,900 shares of the restricted stock awarded will vest from 2015 to 2019. In addition, assuming the time vesting conditions are met, 4,000 stock options awarded will vest from 2015 to 2017, and 26,000 stock options awarded will vest from 2015 to 2019.

The following table summarizes the activity of restricted stock under the 2011 Plan at the dates and for the period indicated.

	Unvested			Vested		Total granted, net of forfeitures
Balance, December 31, 2013		103,507			2,500		106,007
Granted		27,351			-		27,351
Forfeited		(625	)		-		(625	)
Vested		(37,399	)		37,399		-
Balance, December 31, 2014		92,834			39,899		132,733

The weighted-average grant date fair value of restricted stock awards that vested during the year ended December 31, 2014 was $11.07 per share. The value of shares vested during the year ended December 31, 2014 based on vesting date fair value totaled $508 thousand.

For both the 2008 Plan and the 2011 Plan, a portion of the restricted shares that vested during 2014 were net-settled to cover the required withholding taxes, and the grantee received the common stock equal to the vested shares less the net-settled shares. Withholding taxes for the remaining shares that vested during 2014 were paid in cash by the grantee. The net-share settlements reduced the number of common shares outstanding.

The following table summarizes information regarding stock options under the 2011 Plan that were outstanding and exercisable at December 31, 2014.

		Options outstanding						Options exercisable
Weighted- average exercise price		Number of stock options		Weighted- average remaining contractual life (years)		Value of outstanding in-the- money stock options		Number of stock options		Weighted- average remaining contractual life (years)		Value of exercisable in-the- money stock options
$	10.40		312,501		6.38	$	1,968,756		104,167		6.38	$	656,252
	11.00		59,500		6.54		339,150		19,833		6.54		113,048
	12.96		4,000		9.14		14,960		-		-		-
	16.43		26,000		9.96		7,020		-		-		-
Total			402,001		6.66	$	2,329,886		124,000		6.40	$	769,300

Determining Fair Value. The following table summarizes the weighted-average fair value of stock option awards granted under the 2011 Plan during 2014 as estimated on the date of grant using the Black-Scholes option-pricing model and the weighted-average assumptions used to determine the fair value of such grants.

Option exercise price, per share	$	15.97
Fair value of stock option awards granted, per share	$	5.73
Expected dividend yield		1.1	%
Expected volatility		36
Risk-free interest rate		2.00
Expected term (years)		7
Vesting period (years)		5

Compensation Expense Relating to Equity-Based Compensation

The following table summarizes compensation expense for the 1997 Plan, 2008 Plan and the 2011 Plan charged against pretax income for the periods indicated (in thousands).

	For the years ended December 31,
	2014		2013		2012
Compensation expense
1997 Plan	$	-	$	-	$	-
2008 Plan		83		336		343
2011 Plan		690		822		766
Total equity-based compensation expense	$	773	$	1,158	$	1,109
Income tax benefit	$	271	$	-	$	-

At December 31, 2014, the total unrecognized pretax compensation expense related to unvested equity awards granted under the 2008 Plan and the 2011 Plan was $49 thousand and $909 thousand, respectively. This expense is expected to be recognized through 2016 under the 2008 Plan and 2019 under the 2011 Plan.