Note J

Employee Benefits and Stock Compensation

The Company’s profit sharing and retirement plan covers substantially all employees after one year of service and includes a matching benefit feature for employees electing to defer the elective portion of their profit sharing compensation. In addition, amounts of compensation contributed by employees are matched on a percentage basis under the plan. The profit sharing and retirement contributions charged to operations were $1,499,000 in 2015, $1,198,000 in 2014 and $807,000 in 2013.

The Company, through its Compensation and Governance Committee of the Board of Directors, offers equity compensation to employees and non-employee directors of Seacoast and Seacoast Bank in the form of share-based awards. Stock options, restricted stock awards (“RSAs”), and restricted stock units (“RSUs”) vest over time, upon the satisfaction of established performance criteria, or both.

The Company believes such awards better align the interests of its employees and non-employee directors with those of its shareholders. Option awards are granted with an exercise price at least equal to the market price of the Company’s stock at the date of grant. Option and other share-based awards vest at such times as are determined by the Compensation and Governance Committee of the Board of Directors (the Compensation Commiteee) at the time of grant. The options have a maximum term of ten years. The 2013 plan includes a number of provisions, which are consistent with the interests of shareholders and sound corporate governance practices. More information on this plan can be found in our proxy statement.

The fair value of RSAs and RSUs are estimated based on the price of the Company’s common stock on the date of grant. Compensation cost is measured ratably over the vesting period of the awards and reversed for awards which are forfeited due to unfulfilled service or performance criteria. All options or SSARs issued since December 31, 2002 have a vesting period of three to five years and a contractual life of ten years. All stock awards and restricted stock units have a contractual life of three or five years. To the extent the Company has treasury shares available, stock options exercised or stock grants awarded may be issued from treasury shares or, if treasury shares are insufficient, the Company can issue new shares.

Vesting of share-based awards is immediately accelerated on death or disability. Upon the event of a change-in-control acceleration is immediately accelerated, or can be at the discretion of the Compensation Committee. The Compensation Committee may also accelerate vesting upon retirement (including a voluntary termination of employment at age 55 for those employees with five or more years of service with the company).

Awards are currently granted under the Seacoast 2013 Incentive Plan (“2013 Plan”), which shareholders approved on May 23, 2013 and amended on May 26, 2015 to increase the number authorized shares for issuance thereunder. The 2013 Plan expires on May 26, 2025. The 2013 Plan replaced the 2000 Incentive Plan and the 2008 Incentive Plan (the “Prior Plans”). Upon adoption of the 2013 Plan, no further awards were granted under the Prior Plans, which remain in effect only so long as awards granted thereunder remain outstanding. Under the terms of the 2013 Plan, approximately 1.7 million shares are available for issuance and 948,857 shares remain outstanding as of December 31, 2015.

Prior to the adoption of the 2013 Plan, the Company maintained other employee stock compensation plans (“Prior Company Plans”). Under Prior Company Plans, a total of 960,000 shares of common stock were made available for options, stock-settled stock appreciation rights or restricted stock awards. At December 31, 2015, a total of 119,604 shares remain outstanding from Prior Company Plans.

The impact of shared-based compensation on the Company’s financial results for the following periods:

	Year Ended December 31,
	2015			2014		2013
	(In thousands)
Share-based compensation expense	$	2,859	$	1,299	$	246
Income tax benefit		(963)		(501)		(95)
Reduction to net income	$	1,896	$	798	$	151

The total unrecognized compensation cost and the weighted-average period over which unrecognized compensation cost is expected to be recognized related to non-vested share-based compensation arrangements at December 31, 2015 is presented below:

(Dollars in thousands)	Unrecognized Compensation Cost		Weighted-Average Period Remaining (Years)
Restricted stock	$	3,794	2.7
Stock options		542	1.8
Total	$	4,336	2.5

Restricted Stock

As part of restricted share issuances, in 2013, the Company issued 195,000 of restricted stock units at $11.00 per share. An additional 27,692 restricted stock units were issued in 2014 at 10.19 per share. The restricted stock units allow the grantee to earn 0-160 percent of the target award as determined by two criteria, the Company’s after-tax earnings and its classified assets ratio. Any restricted stock units that become eligible for vesting pursuant to the performance requirements will vest by one-third on each of the first, second and third anniversaries of the last day of the performance period, December 31, 2016, 2017 and 2018, respectively. If the Company does not achieve the target performance goal for both criteria by December 31, 2015, then none of the restricted stock units will vest and they will be forfeited. On December 31, 2015 these restricted shares were converted to restricted stock awards at a rate of 150% of the target awards.

Information regarding restricted stock for the following periods is summarized below:

	Year Ended December 31,
	2015		2014		2013
	(Dollars in thousands, except per share amounts)
Shares granted		250,934		27,692		195,000
Weighted-average grant date fair value	$	13.42	$	10.19	$	11.00
Fair value of awards vested (1)		836		1,455		133

(1) Based on grant date fair value

A summary of the status of the Company’s non-vested restricted stock as of December 31, 2014, and changes during the year then ended, is presented below:

(In thousands, except per share amounts)	Shares		Weighted- Average Grant-Date Fair Value
Non-vested at January 1, 2014		361,035	$	9.89
Granted		250,934		13.42
Converted		93,688		10.45
Forfeited/Canceled		(8,039)		10.81
Vested		(60,849)		13.74
Non-vested at December 31, 2014		636,769		10.98

Stock Options

The Company estimated the fair value of each option grant on the date of grant using the Black-Scholes options-pricing model with the following weighted-average assumptions:

	Year Ended December 31,
	2015			2014			2013
Risk-free interest rates		1.65	%		2.7	%		2.5	%
Expected dividend yield		0	%		0	%		0	%
Expected volatility		15.5	%		17.0	%		26.5	%
Expected lives (years)		5.0			5.0			5.0

Information regarding stock options as of December 31, 2015, and changes during the year ended are presented below:

(Dollars in thousands, except share and per share data)	Options		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value
Outstanding at January 1, 2015		492,997	$	18.72		8.7	$	1,311
Granted		63,650		12.63		0		0
Exercised		0		0		0		0
Forfeited		0		0		0		0
Outstanding at December 31, 2015		556,647		18.02		7.6		2,099

Exercisable at December 31, 2015		255,616	$	26.25		7.1	$	912

The following table summarizes information related to stock options:

	Year Ended December 31,
(Dollars in thousands, except share and per share data)	2015		2014		2013
Options granted		63,650		413,000		49,200
Weighted-average grant date fair value	$	2.21	$	2.26	$	3.10
Proceeds from stock options exercised		0		0		0
Tax benefit recognized from stock options exercised		0		0		0
Intrinsic value of stock options exercised		0		0		0

The following table provides information related to options as of December 31, 2015:

Range of Exercise Prices	Options Outstanding		Remaining contractual Life	Shares Exercisable		Remaining Contractual Life	Weighted Average Exercise Price*
$10.50 to $10.80		400,000	8.3 yrs		188,889	8.2 yrs	$	10.70
$10.81 to $13.00		119,250	7.4 yrs		29,330	7.6 yrs	$	11.44
$110.00 to $120.00		28,537	1.3 yrs		28,537	1.3 yrs	$	111.09
$120.01 to $140.00		8,860	0.4 yrs		8,860	0.4 yrs	$	133.60
Total		556,647	7.6 yrs		255,616	7.1 yrs	$	18.02

Employee Stock Purchase Plan

The Employee Stock Purchase Plan (“ESPP”), as amended, was approved by shareholders on April 25, 1989, and additional shares authorized for issuance by shareholders on June 18, 2009 and May 2, 2013. Under the ESPP, the Company is authorized to issue up to 300,000 common shares of the Company to eligible employees of the Company. These shares may be purchased by employees at a price equal to 95% of the fair market value of the shares on the purchase date. Purchases under the ESPP are made monthly. Employee contributions to the ESPP are made through payroll deductions.

	Year Ended December 31,
	2015		2014		2013
ESPP shares purchased		9,083		13,294		18,536
Weighted-average employee purchase price	$	13.99	$	10.63	$	10.20