Stock-Based Compensation Plans

12 Months Ended

Dec. 31, 2017

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

Stock-Based Compensation Plans

9. Stock-Based Compensation Plans.

The Company has two Stock Option Plans (the 2006 Stock Incentive Plan and the 2016 Equity Incentive Option Plan) under which options for shares of common stock were granted to directors, officers and key employees. The 2016 plan permits the grant of stock options, stock appreciation rights, restricted stock awards, restricted stock units, or stock awards. The options awarded under the plans have similar characteristics. All stock options are non-qualified and expire ten years from the date of grant. Stock based compensation awarded to directors, officers and employees are exercisable immediately or become exercisable in cumulative installments of 20% or 25% at the end of each year following the date of grant. When stock options are exercised the Company issues new shares after receipt of exercise proceeds and taxes due, if any, from the grantee. The number of common shares available for future issuance was 544,217 at December 31, 2017.

The Company utilizes the Black-Scholes valuation model for estimating fair value of stock compensation for options awarded to officers and employees. Each grant is evaluated based upon assumptions at the time of grant. The assumptions were no dividend yield, expected volatility between 32% and 43%, risk-free interest rate of .6% to 4.2% and expected life of 3.0 to 7.0 years.

The dividend yield of zero is based on the fact that the Company does not pay cash dividends and has no present intention to pay cash dividends. Expected volatility is estimated based on the Company’s historical experience over a period equivalent to the expected life in years. The risk-free interest rate is based on the U.S. Treasury constant maturity interest rate at the date of grant with a term consistent with the expected life of the options granted. The expected life calculation is based on the observed and expected time to exercise options by the employees.

As a result of the Spin-off and pursuant to the Employee Matters Agreement, we made certain adjustments to the exercise price and number of outstanding FRP stock options. All outstanding options held by the Company directors, Company officers and key employees on January 30, 2015 were cancelled and replaced by an equal number of FRP options at 75.14% of the previous exercise price based upon the market value of FRP less the when issued market value of the Company on that day. For FRP officers additional options were issued rather than issuing Patriot options for the 24.86% market value attributed to Patriot. The adjusted stock options are subject to the same vesting conditions and other terms that applied to the original FRP award immediately prior to the Spin-off, except as otherwise described above.

Subsequent to Spin-off, the realized tax benefit pertaining to options exercised and the remaining compensation cost of options previously granted prior to the Spin-off will be recognized by FRP or Patriot based on the employment location of the related employee or director.

As previously disclosed, Thompson S. Baker II resigned from his position as CEO and from the board of directors on March 13, 2017. In recognition of his outstanding service to the Company, the Board approved the vesting of all of Mr. Baker's outstanding FRP stock options, which expired 90 days following the termination of his employment. The vesting of Mr. Baker’s outstanding FRP options that were issued prior to the spin-off required Patriot to record modification stock compensation expense of $150,000. FRP reimbursed Patriot for this cost under the transition services agreement. The vesting of Mr. Baker’s outstanding FRP options that were issued subsequent to the spin-off required modified stock compensation expense of $41,000.

The Company recorded the following stock compensation expense in its consolidated statement of income (in thousands):

	Year ended		Three months ended		Year ended		Year ended
	December 31,		December 31,		September 30,		September 30,
	2017		2016		2016		2015
Stock option grants	$	268		79		166		267
Annual director stock award		445		—		412		536
	$	713		79		578		803

A summary of changes in outstanding options is presented below (in thousands, except share and per share amounts):

				Weighted		Weighted		Weighted
	Number			Average		Average		Average
	of			Exercise		Remaining		Grant Date
Options	Shares			Price		Term (yrs)		Fair Value(000's)
Outstanding at
October 1, 2014		326,830		$	25.43		5.0	$	3,481
Spin-off adjustment								$	(865	)
Spin-off conversion		17,795		$	20.63			$	155
Granted		39,425		$	26.97			$	432
Forfeited		(6,000	)	$	14.97			$	(35	)
Exercised		(72,300	)	$	13.31			$	(430	)
Outstanding at
September 30, 2015		305,750		$	21.90		5.9	$	2,738
Granted		21,540		$	31.15			$	272
Exercised		(63,730	)	$	18.39			$	(471	)
Outstanding at
September 30, 2016		263,560		$	23.50		5.6	$	2,539
Granted		19,600		$	39.00			$	297
Exercised		(46,775	)	$	20.66			$	(396	)
Outstanding at
December 31, 2016		236,385		$	25.35		6.1	$	2,440
Granted		30,255		$	43.45			$	440
Modification		—		$	30.21			$	(137	)
Exercised		(92,130	)	$	24.93			$	(842	)
Outstanding at
December 31, 2017		174,510		$	28.70		6.0	$	1,901
Exercisable at
December 31, 2017		129,916		$	25.66		5.1	$	1,223
Vested during
twelve months ended
December 31, 2017		41,810						$	405

The following table summarizes information concerning stock options outstanding at December 31, 2017:

	Shares	Weighted			Weighted
Range of Exercise	under	Average			Average
Prices per Share	Option	Exercise Price			Remaining Life
Non-exercisable:
$24.76 - $37.25	7,084			26.97		6.9
$37.26 - $41.39	37,510			39.59		9.0
	44,594		$	37.58		8.7	Years
Exercisable:
$16.51 - $24.75	14,100			16.72		3.9
$24.76 - $37.25	73,928			22.06		3.9
$37.26 - $41.39	41,888			35.01		7.6
	129,916		$	25.66		5.1	Years
Total	174,510		$	28.70		6.0	Years

The aggregate intrinsic value of exercisable in-the-money options was $2,418,000 and the aggregate intrinsic value of outstanding in-the-money options was $2,719,000 based on the market closing price of $44.25 on December 29, 2017 less exercise prices.

The unrecognized compensation cost of options granted to FRP employees but not yet vested as of December 31, 2017 was $583,000, which is expected to be recognized over a weighted-average period of 4.1 years.

Gains of $1,634,000 were realized by option holders during the year ended December 31, 2017. Patriot realized the tax benefits of $1,525,000 of these gains because these options were exercised by Patriot employees for options granted prior to the spin-off.