Stock-based compensation

9 Months Ended

Sep. 30, 2019

Disclosure Text Block

Stock-based Compensation

Note 32 - Stock-based compensation

Incentive Plan

The Popular, Inc. 2004 Omnibus Incentive Plan (the “Incentive Plan”) permits the issuance of several types of stock based compensation for employees and directors of the Corporation and/or any of its subsidiaries. Participants in the Incentive Plan are designated by the Compensation Committee of the Board of Directors (or its delegate as determined by the Board). Under the Incentive Plan, the Corporation has issued restricted stock and performance shares for its employees and restricted stock and restricted stock units (“RSU”) to its directors.

The restricted shares for employees, will become vested based on the employees’ continued service with Popular. Unless otherwise stated in an agreement, the compensation cost associated with the shares of restricted stock is determined based on a two-prong vesting schedule. The first part is vested ratably over five years commencing at the date of grant (the “graduated vesting portion”) and the second part is vested at termination of employment after attainment of 55 years of age and 10 years of service (the “retirement vesting portion”). The graduated vesting portion is accelerated at termination of employment after attaining 55 years of age and 10 years of service. The vesting schedule for restricted shares granted on or after 2014 was modified as follows, the first part is vested ratably over four years commencing at the date of the grant (the “graduated vesting portion”) and the second part is vested at termination of employment after attainment of the earlier of 55 years of age and 10 years of service or 60 years of age and 5 years of service (the “retirement vesting portion”). The graduated vesting portion is accelerated at termination of employment after attaining the earlier of 55 years of age and 10 years of service or 60 years of age and 5 years of service.

The performance share awards consist of the opportunity to receive shares of Popular, Inc.’s common stock provided that the Corporation achieves certain goals during a three-year performance cycle. The goals will be based on two metrics weighted equally: the Relative Total Shareholder Return (“TSR”) and the Absolute Earnings per Share (“EPS”) goals. The TSR metric is considered to be a market condition under ASC 718. For equity settled awards based on a market condition, the fair value is determined as of the grant date and is not subsequently revised based on actual performance. The EPS performance metric is considered to be a performance condition under ASC 718. The fair value is determined based on the probability of achieving the EPS goal as of each reporting period. The TSR and EPS metrics are equally weighted and work independently. The number of shares that will ultimately vest ranges from 50% to a 150% of target based on both market (TSR) and performance (EPS) conditions. The performance shares vest at the end of the three-year performance cycle. If a participant terminates employment after attaining the earlier of 55 years of age and 10 years of service or 60 years of age and 5 years of service, the performance shares shall continue outstanding and vest at the end of the performance cycle.

The following table summarizes the restricted stock and performance shares activity under the Incentive Plan for members of management.

(Not in thousands)	Shares		Weighted-Average Grant Date Fair Value
Non-vested at December 31, 2017	295,340	$	30.75
Granted	239,062		45.81
Performance Shares Quantity Adjustment	234,076		33.09
Vested	(372,271)		35.83
Forfeited	(14,021)		37.35
Non-vested at December 31, 2018	382,186	$	36.41
Granted	218,169		55.55
Performance Shares Quantity Adjustment	22,973		55.51
Vested	(275,727)		44.97
Non-vested at September 30, 2019	347,601	$	41.77

During the quarter ended September 30, 2019, 619 shares of restricted stock (September 30, 2018 – 8,395) were awarded to management under the Incentive Plan. During the quarters ended September 30, 2019 and 2018, no performance shares were awarded to management under the Incentive Plan. For the nine months ended September 30, 2019, 152,773 shares of restricted stock (September 30, 2018 – 163,701) and 65,396 performance shares (September 30, 2018 - 72,414) were awarded to management under the incentive plan.

During the quarter ended September 30, 2019, the Corporation recognized $1.0 million of restricted stock expense related to management incentive awards, with a tax benefit of $0.2 million (September 30, 2018 - $1.1 million, with a tax benefit of $0.2 million). For the nine months ended September 30, 2019, the Corporation recognized $6.8 million of restricted stock expense related to management incentive awards, with a tax benefit of $1.1 million (September 30, 2018 - $5.9 million, with a tax benefit of $0.9 million). For the nine months ended September 30, 2019, the fair market value of the restricted stock and performance shares vested was $13.7 million at grant date and $18.9 million at vesting date. This triggers a windfall of $1.9 million that was recorded as a reduction on income tax expense. During the quarter ended September 30, 2019 the Corporation recognized $0.4 million of performance shares expense, with a tax benefit of $23 thousand (September 30, 2018 - $0.6 million, with a tax benefit of $12 thousand). For the nine months ended September 30, 2019, the Corporation recognized $4.3 million of performance shares expense, with a tax benefit of $0.3 million (September 30, 2018 - $3.8 million, with a tax benefit of $0.3 million). The total unrecognized compensation cost related to non-vested restricted stock awards and performance shares to members of management at September 30, 2019 was $9.2 million and is expected to be recognized over a weighted-average period of 2.5 years.

The following table summarizes the restricted stock activity under the Incentive Plan for members of the Board of Directors:

(Not in thousands)	Restricted Stock shares		Weighted-Average Grant Date Fair Value per Share	Restricted Stock units		Weighted-Average Grant Date Fair Value per Unit
Non-vested at December 31, 2017	-	$	-	-	$	-
Granted	25,159		46.71	-		-
Vested	(25,159)		46.71	-		-
Forfeited	-		-	-		-
Non-vested at December 31, 2018	-	$	-	-	$	-
Granted	1,052		49.25	27,449		57.64
Vested	(1,052)		49.25	(27,449)		57.64
Forfeited	-		-	-		-
Non-vested at September 30, 2019	-	$	-	-	$	-

Effective on May 2019, all equity awards granted to the directors may be paid in either restricted stocks or RSU, at the directors’ election. For the year 2019, all directors elected RSU. The directors’ equity awards will vest and become non-forfeitable on the grant date of such award. At the director’s option, the shares of common stocks underlying the RSU award shall be delivered to the director after its retirement, either on a fix date or in annual installments. To the extent that cash dividends are paid on the Corporation’s outstanding common stocks, the director will receive an additional number of RSU that reflect reinvested dividend equivalent.

During the quarter ended September 30, 2019, no shares of restricted stock were granted to members of the Board of Directors of Popular, Inc. (September 30, 2018 - 2,765) and 1,989 RSUs were granted to members of the Board of Directors of Popular, Inc. During this period, the Corporation did not recognize any expense related to these restricted stock shares, (September 30, 2018 - $0.1 million, with a tax benefit of $16 thousand), and the expense related to these RSUs was of $0.1 million. For the nine months ended September 30, 2019, the Corporation granted 1,052 shares of restricted stock to members of the Board of Directors of Popular, Inc., which became vested at grant date (September 30, 2018 – 25,159) and 27,449 RSU to members of the Board of Directors of Popular, Inc., which became vested at grant date. During this period, the Corporation recognized $52 thousand of restricted stock expense related to these restricted stock shares, with a tax benefit of $6 thousand (September 30, 2018 - $1.6 million, with a tax benefit of $0.2 million) and $1.5 million of restricted stock expense related to these RSU, with a tax benefit of $0.2 million. The fair value at vesting date of the restricted stock shares and RSU vested during the nine months ended September 30, 2019 for directors was $52 thousand and $1.5 million respectively.