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Stock-Based Compensation Plans
12 Months Ended
Dec. 31, 2013
Stock-Based Compensation Plans [Abstract]  
Stock-Based Compensation Plans

NOTE 13: STOCK-BASED COMPENSATION PLANS

 

Merchants has established stock based compensation plans for directors and for certain employees. The Amended and Restated Merchants Bancshares, Inc. 2008 Stock Incentive Plan (the “Plan”) allows us to grant stock options and restricted stock grants to certain employees. The Plan allows for the issuance of up to 600,000 shares of stock. As of December 31, 2013, there were 455,464 shares that remain available for future grants under the Plan.  The Merchants Bancshares, Inc. and Subsidiaries Amended and Restated 2008 Compensation Plan for Non-Employee Directors and Trustees allows us to issue up to 150,000 shares of stock. As of December 31, 2013 there were 106,088 shares that remain available for future issuance under the Plan.

 

The fair value of stock option and restricted stock awards, measured at the grant date are amortized to compensation expense on a straight-line basis over the vesting period. The total compensation cost related to stock option awards and restricted stock awards was $187 thousand, $172 thousand and $164 thousand for 2013, 2012 and 2011, respectively. Compensation cost related to stock option and restricted stock awards is included in salary expense in the accompanying consolidated statements of income. There is no remaining compensation expense relating to stock option grants. Remaining compensation expense related to current outstanding restricted stock awards is $237 thousand.

 

Deferred Compensation Plans for Non-Employee Directors

Merchants has established deferred compensation plans for non-employee Directors and Trustees. The total number of shares of common stock available under the plan is 150,000 shares. Under the terms of these plans participating directors can elect to have all, or a specified percentage, of their director’s fees for a given year paid in the form of cash or deferred in the form of restricted shares of Merchants’ common stock. These shares are held in a rabbi trust and are considered outstanding for purposes of computing earnings per share. Directors who elect to have their compensation deferred are credited with a number of shares of Merchants’ common stock equal in value to the amount of fees deferred. The participating director may not sell, transfer or otherwise dispose of these shares prior to distribution. With respect to shares of common stock issued or otherwise transferred to a participating director, the participating director will have the right to receive dividends or other distributions thereon. Deferred director’s fees are recognized as an expense in the year incurred.

 

Restricted Stock

Restricted stock provides grantees with rights to shares of common stock upon completion of a service period. During the service period, all shares are considered outstanding and dividends are paid on the restricted stock. We made a grant of 5,846, 6,680 and 11,054 restricted shares in 2013, 2012 and 2011, respectively. The shares vest three years after the grant date. The grant date fair value of restricted stock granted during 2013, 2012 and 2011 was $28.96, $26.33 per share and $25.00 per share, respectively. All shares are currently unvested.

 

Stock Options

Stock options were granted at 100% of fair market value and vest over three years.  The last option granted was in May 2010. The fair value of each option grant was estimated on the grant date using the Black-Scholes option-pricing model that requires Merchants to develop estimates for assumptions used in the model. The Black-Scholes valuation model uses the following assumptions: expected volatility, expected term of option, risk-free interest rate and dividend yield. Expected volatility estimates are developed based on historical volatility of our stock. We use historical data to estimate the expected term of the options. The risk-free interest rate for periods within the expected life of the option is based on the U.S. Treasury yield in effect at the grant date. The dividend yield represents the expected dividends on our stock.

 

A summary of Merchants’ stock option plan as of December 31, 2013, 2012 and 2011 and changes during the years then ended are as follows, with numbers of shares in thousands:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2013

2012

2011

 

 

Weighted

 

Weighted

 

Weighted

 

 

Average

 

Average

 

Average

 

Number

Exercise

Number

Exercise

Number

Exercise

 

Of

Price

Of

Price

Of

Price

 

Shares

Per Share

Shares

Per Share

Shares

Per Share

Options outstanding, beginning of year

95 

$

22.87 
121 

$

22.81 
127 

$

22.82 

Granted

 

 

 

Exercised

 

22.07 
18 

 

22.81 

 

22.93 

Forfeited

 

 

22.07 

 

Expired

 

 

 

Options outstanding, end of year

87 

$

22.95 
95 

$

22.87 
121 

$

22.81 

Options exercisable

87 

$

22.95 
51 

$

23.57 
34 

$

24.01 

 

As of December 31, 2013, there were options outstanding within the following ranges: 77 thousand at an exercise price within the range of $22.07 to $22.93, and 10 thousand at $26.63.  

 

The total intrinsic value of options exercised was $52 thousand, $73 thousand and $8 thousand for the three years ended December 31, 2013, 2012 and 2011, respectively. We generally use shares held in treasury for option exercises. Options exercisable at December 31, 2013 had an intrinsic value of $924 thousand and a weighted average remaining term of 5.30 years. The total cash received from employees, net of withholding taxes, as a result of employee stock option exercises was $0, $280 thousand and $0 for the years ended December 31, 2013, 2012 and 2011, respectively. The tax benefit realized as a result of the stock option exercises was approximately $8 thousand, $20 thousand and $1 thousand for the years ended December 31, 2013, 2012 and 2011, respectively.