Stock-based compensation

The Company has historically maintained certain stock-based compensation plans, approved by the Company’s stockholders that are administered by the Board or the Compensation Committee of the Board (the “Compensation Committee”). In April 2008, the stockholders of the Company approved the 2008 Cascade Bancorp Performance Incentive Plan (the “2008 Plan”). The 2008 Plan authorized the Board to issue up to an additional 1,000,000 shares of common stock related to the grant or settlement of stock-based compensation awards, expanded the types of stock-based compensation awards that may be granted, and expanded the parties eligible to receive such awards. In addition, in April 2011, the stockholders approved an increase in the common stock reserved under the 2008 Plan from 1,000,000 shares to 6,000,000 shares. Under the Company’s stock-based compensation plans, the Board (or the Compensation Committee) may grant stock options (including incentive stock options (“ISOs”) as defined in Section 422 of the Internal Revenue Code and non-qualified stock options (“NSOs”)), restricted stock, restricted stock units, stock appreciation rights, and other similar types of equity awards intended to qualify as “performance-based” compensation under applicable tax rules. The stock-based compensation plans were established to allow for the granting of compensation awards to attract, motivate, and retain employees, executive officers, non-employee directors, and other service providers who contribute to the success and profitability of the Company and to give such persons a proprietary interest in the Company, thereby enhancing their personal interest in the Company’s success.

The Board or Compensation Committee may establish and prescribe grant guidelines including various terms and conditions for the granting of stock-based compensation and the total number of shares authorized for this purpose. Under the 2008 Plan, for ISOs and NSOs, the option strike price must be no less than 100% of the stock price at the grant date. Prior to the approval of the 2008 Plan, the option strike price for NSOs could be no less than 85% of the stock price at the grant date. Generally, options become exercisable in varying amounts based on years of employee service and vesting schedules. All options expire after a period of ten years from the date of grant. Other permissible stock awards include restricted stock grants, restricted stock units, stock appreciation rights or other similar stock awards (including awards that do not require the grantee to pay any amount in connection with receiving the shares or that have a purchase price that is less than the grant date fair market value of the Company’s stock).

At December 31, 2015, 269,270 shares reserved under the stock-based compensation plans were available for future grants.

Stock Option Grants

During the year ended December 31, 2015, the Company granted 3,300,000 stock options and incurred stock option compensation expense of $1.0 million. The 2015 grants are the first material stock option grants since 2008. In this time interval, the Company made only de minimis option grants to non-executive officers to facilitate hiring. The 2015 grants, which had an estimated grant date fair value of $1.63 per share and strike price of $4.79 per share, are scheduled to vest over a three to five year period and carry a 10 year life. Using the Black-Scholes model, assumptions related to the fair value of grants include a dividend yield of 0%, expected volatility of 36.59%, a risk free rate of 1.28%, and expected option life of five years.

The Black-Scholes option-pricing model was developed for use in estimating the fair value of publicly-traded options that have no vesting restrictions and are fully transferable. The Black-Scholes model is affected by subjective assumptions including historical volatility of the Company’s common stock price. Assumptions affecting the Black-Scholes option pricing model for the 2015 stock grants include a dividend yield that was based on historical dividend information. The expected volatility was based on the historical volatility of the Company’s common stock price as adjusted for certain historical periods of extraordinary volatility in order to provide a basis for a reasonable estimate of fair value.

In adjusting its methodology for calculating expected volatility, the Company identified certain historical periods during which extraordinary price volatility which was caused by discrete events specific to the Company that are not likely to recur, including recapitalization, the discounted payoff of its junior subordinated debentures, a major bulk sale of its adversely risk rated assets, the write off and recapture of its DTA, and highly uncertain regulatory circumstances. For the identified periods, the Company replaced its common stock price volatility with the average volatility of a peer group of publicly traded banks in the Western U.S. of comparable size and complexity. The Company expects to use this methodology for potential future stock options grants until such a time that the periods of historical volatility containing the events noted above drop off of its historical analysis. The risk-free interest rate assumption was based on the U.S. Treasury yield curve in effect at the date of grant for periods corresponding with the expected lives of the options granted. The expected option lives represent the period of time that options are expected to be outstanding giving consideration to vesting schedules, historical exercise and forfeiture patterns.

During the years ended December 31, 2014 and 2013, the Company granted a de minimis number of stock options, and related stock option compensation expense was immaterial for these periods. As of December 31, 2015, unrecognized compensation cost related to nonvested stock options totaled $4.4 million, which is expected to be recognized in 2016 through 2020.

The following table presents the activity related to options under all plans for the years ended December 31, 2015, 2014, and 2013.



	2015				2014				2013
	Options outstanding		Weighted-average exercise price		Options outstanding		Weighted-average exercise price		Options outstanding		Weighted-average exercise price
Balance at beginning of year	85,901		$	34.85	111,571		$	38.92	139,446		$	53.66
Granted	3,300,000		4.79		—		—		5,507		6.80
Exercised/Released	—		—		—		—		(5,250	)	5.70
Cancelled / forfeited	(8,301	)	21.14		(20,482	)	33.90		(17,326	)	124.87
Expired	(1,691	)	151.20		(5,188	)	125.83		(10,806	)	90.72
Balance at end of year	3,375,909		$	5.44	85,901		$	34.85	111,571		$	38.92
Exercisable at end of year	75,909				67,407				73,665

Information regarding the number, weighted-average exercise price, and weighted-average remaining contractual life of options by range of exercise price at December 31, 2015 is as follows:



	Options outstanding				Exercisable options
Exercise price range	Number of options	Weighted-average exercise price		Weighted-average remaining contractual life (years)	Number of options	Weighted-average exercise price
Under $50.00	3,361,624	$	4.81	9.0	61,624	$	5.75
$80.01 - $120.00	9,201	101.30		2.2	9,201	101.30
$160.01 - $220.00	1,634	207.30		0.1	1,634	207.20
$220.01 - $279.00	3,450	271.98		1.1	3,450	271.98
	3,375,909	$	5.44	9.0	75,909	$	33.77

Restricted Stock Grants

The Company has also granted awards of nonvested restricted stock. During the year ended December 31, 2015, the Company granted 411,037 additional shares of restricted stock with a weighted-average grant date fair value of $5.00 per share, which vest during 2016 through 2020. The following table presents the activity for nonvested restricted stock for the year ended December 31, 2015:



	Number of shares		Weighted- average grant date fair value per share
Nonvested as of January 1, 2015	794,473		$	6.62
Granted	411,037		5.00
Released	(222,849	)	5.19
Canceled / forfeited	(73,251	)	4.99
Nonvested as of December 31, 2015	909,410		$	6.37

Nonvested restricted stock is scheduled to vest over a three to five year period. The unearned compensation on restricted stock is being amortized to expense on a straight-line basis over the estimated applicable service or vesting periods. As of December 31, 2015, unrecognized compensation cost related to nonvested restricted stock totaled approximately $3.7 million, which is expected to be recognized over the next five years. Total expense recognized by the Company for nonvested restricted stock for the years ended December 31, 2015, 2014, and 2013 was $1.5 million, $1.2 million, and $0.8 million, respectively.

The Company has also granted awards of restricted stock units (“RSUs”). A RSU represents the unfunded, unsecured right to require the Company to deliver to the participant one share of common stock for each RSU. Total expense recognized by the Company related to RSUs was insignificant for the years ended December 31, 2015, 2014, and 2013. There was no unrecognized compensation cost related to RSUs at December 31, 2015, 2014, and 2013, as all RSUs were fully-vested. There were no RSUs granted and no RSUs cancelled during the years ended December 31, 2015 and 2014. There were 4,498 RSUs granted during the year ended December 31, 2013 and there were no RSUs cancelled. At December 31, 2015 there were no fully-vested RSUs outstanding. At both December 31, 2014 and December 31, 2013, there were 16,067 fully-vested RSUs outstanding with a weighted-average grant date fair value of $9.22 per share.