Employee Benefits and Stock Compensation

The Company’s defined contribution plan covers substantially all employees after one year of service and includes a matching benefit for employees who can elect to defer a portion of their compensation. In addition, amounts of compensation contributed by employees are matched on a percentage basis under the plan. The defined contribution plan contributions charged to operations were $2.1 million in 2018, $1.9 million in 2017, and $1.7 million in 2016.

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

Stock options are granted with an exercise price at least equal to the market price of the Company’s stock at the date of grant. The fair value of options granted is estimated on the date of grant using the Black-Scholes option-pricing model. Compensation cost is amortized on a straight-line basis over the vesting period. Vesting is determined by the Compensation Committee at the time of grant, generally over five years. The options have a maximum term of ten years.

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 straight-line for RSAs and ratably for RSUs over the vesting period of the awards and reversed for awards which are forfeited due to unfulfilled service or performance criteria. To the extent the Company has treasury shares available, stock options exercised or stock grants awarded may be issued from treasury shares. If treasury shares are insufficient, the Company can issue new shares.

Vesting of share-based awards is immediately accelerated on death or disability of the recipient. The Compensation Committee may, at its discretion, 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, or upon the event of a change-in-control.

Awards are currently granted under the Seacoast 2013 Incentive Plan (“2013 Plan”), which shareholders approved on May 23, 2013 and amended on August 26, 2015 to increase the number of authorized shares for issuance thereunder to 3,000,000 and amended on May 24, 2018 to increase the number of authorized shares for issuance thereunder to 4,250,000. The 2013 Plan expires on May 26, 2025. Approximately 1,256,000 shares remain available for issuance as of December 31, 2018.

The impact of share-based compensation on the Company’s financial results is presented below:



	For the Year Ended December 31,
(In thousands)	2018			2017			2016
Share-based compensation expense	$	7,823		$	5,267		4,154
Income tax benefit	(1,911		)	(1,966		)	(1,602	)

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, 2018 is presented below:



(In thousands)	Unrecognized Compensation Cost		Weighted-Average Period Remaining (Years)
Restricted stock awards	$	4,637	1.5
Restricted stock units	4,319		1.7
Stock options	1,653		1.8
Total	$	10,609	1.7

Restricted Stock Awards

RSAs were granted in 2018 to various employees and vest over time, generally three years. Compensation cost of RSAs is based on the market value of the Company’s common stock at the date of grant and is recognized over the required service period on a straight-line basis. The Company’s accounting policy is to recognize forfeitures as they occur.

A summary of the status of the Company’s non-vested RSAs as of December 31, 2018, and changes during the year then ended, is presented below:



	Restricted Award Shares		Weighted-Average Grant-Date Fair Value
Non-vested at January 1, 2018	187,511		$	19.18
Granted	242,613		26.48
Forfeited/Canceled	(15,514	)	25.47
Vested	(119,480	)	21.05
Non-vested at December 31, 2018	295,130		24.09

Information regarding restricted stock awards during each of the following years:



	Year Ended December 31,
	2018		2017		2016
Shares granted	242,613		114,331		164,599
Weighted-average grant date fair value	$	26.48	$	24.08	$	16.03
Fair value of awards vested⁽¹⁾	$	2,515	$	1,407	$	1,981
⁽¹⁾Based on grant date fair value

Restricted Stock Units

Certain RSUs granted in 2018 and 2017 allow the grantee to earn 0%-200% of the target award based on the Company's adjusted earnings per share growth or its adjusted return on average tangible equity, each measured over a three year period beginning with the year of grant. Certain RSUs granted in 2016 allow the grantee to earn 0%-200% of the target award as determined by both the Company's adjusted net income and its adjusted return on tangible equity. The 2016 awards measure performance through December 31, 2019.

A summary of the status of the Company’s non-vested RSUs as of December 31, 2018, and changes during the year then ended, is presented below:



	Restricted Award Shares		Weighted-Average Grant-Date Fair Value
Non-vested at January 1, 2018	375,967		$	16.96
Granted	173,193		24.02
Forfeited/Canceled	(247	)	10.50
Vested	(82,077	)	13.34
Non-vested at December 31, 2018	466,836		20.22

Information regarding restricted stock units during each of the following years:



	For the Year Ended December 31,
	2018		2017		2016
Shares granted	173,193		164,268		136,188
Weighted-average grant date fair value	$	24.02	$	23.94	$	13.53
Fair value of awards vested⁽¹⁾	$	1,095	$	937	$	846
⁽¹⁾Based on grant date fair value

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:



	For the Year Ended December 31,
	2018		2017		2016
Risk-free interest rates	2.56	%	1.85	%	1.63	%
Expected dividend yield	0	%	0	%	0	%
Expected volatility	26.6	%	25.4	%	21.9	%
Expected lives (years)	5.0		5.0		5.0

A summary of the Company’s stock options as of December 31, 2018, and changes during the year then ended, are presented below:



	Options		Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value (000s)
Outstanding at January 1, 2018	951,349		$	17.29
Granted	219,118		30.98
Exercised	(175,541	)	11.45
Forfeited	(61,431	)	11.17
Outstanding at December 31, 2018	933,495		22.00		7.09	$	5,569
Exercisable at December 31, 2018	447,033		16.50		6.04	4,511

Information related to stock options during each of the following years:



	For the Year Ended December 31,
	2018		2017		2016
Options granted	219,118		297,576		243,391
Weighted-average grant date fair value	$	5.65	$	4.66	$	3.41
Intrinsic value of stock options exercised	3,045		1,143		80

The following table summarizes information related to stock options as of December 31, 2018:



Range of Exercise Prices	Options Outstanding	Remaining Contractual Life (Years)	Options Exercisable	Weighted Average Exercise Price
$10.54 to $14.82	391,113	5.2	311,759	$	12.23
$15.99 to $28.69	333,281	8.0	135,274	26.35
$31.15 to $31.15	209,101	9.3	—	—
Total	933,495	7.1	447,033	$	16.50

Employee Stock Purchase Plan

The Employee Stock Purchase Plan (“ESPP”), as amended, was approved by shareholders on April 25, 1989, and additional shares were 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’s common stock 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.



	2018		2017		2016
ESPP shares purchased	15,225		12,434		10,483
Weighted-average employee purchase price	$	26.85	$	22.67	$	16.02