Note 9 - Stock-Based Compensation

9 Months Ended

Sep. 30, 2015

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

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

Note 9. Stock-Based Compensation

The Company maintains the 1998 Stock Option Plan (“1998 Plan”), the 2006 Stock Plan (“2006 Plan”) and the 2011 Employee Stock Purchase Plan (“2011 ESPP”).

In connection with the acquisition of Fidelity & Trust Financial Corporation (“Fidelity”), the Company assumed the Fidelity 2004 Long Term Incentive Plan and the 2005 Long Term Incentive Plan (the “Fidelity Plans”).

In connection with the acquisition of Virginia Heritage, the Company assumed the Virginia Heritage 2006 Stock Option Plan and the 2010 Long Term Incentive Plan (the “Virginia Heritage Plans”).

No additional options may be granted under the 1998 Plan, the Fidelity Plans or the Virginia Heritage Plans.

The 2006 Plan provides for the issuance of awards of incentive stock options, non-qualifying stock options, restricted stock and stock appreciation rights to selected key employees and members of the Board. As amended, 1,996,500 shares of common stock are subject to issuance pursuant to awards under the 2006 Plan. Stock options and restricted stock awards are made with an exercise price equal to the average of the high and low price of the Company’s shares at the date of grant.

For awards that are service based, compensation expense is being recognized over the service (vesting) period based on fair value, which for stock option grants is computed using the Black-Scholes model, and for restricted stock awards is based on the average of the high and low stock price of the Company’s shares on the date of grant. For awards that are performance-based, compensation expense is recorded based on the probability of achievement of the goals underlying the grant. No performance-based awards are outstanding at September 30, 2015.

In February 2015, the Company awarded 77,370 shares of restricted stock to senior officers, directors and employees. The shares vest in three substantially equal installments beginning on the first anniversary of the date of grant.

In March 2015, the Company awarded 700 shares of restricted stock to an employee. The shares vest in five substantially equal installments beginning on the first anniversary of the date of grant.

Below is a summary of changes in shares pursuant to our equity compensation plans for the nine months ended September 30, 2015 and 2014. The information excludes restricted stock units and awards.

	Nine Months Ended September 30,
	2015					2014
	Shares			Weighted-Average Exercise Price		Shares			Weighted-Average Exercise Price
Beginning balance		759,683		$	11.36		503,834		$	10.41
Issued		-			-		21,000			32.77
Exercised		(377,357	)		12.73		(64,926	)		16.78
Forfeited		(12,380	)		29.58		(110	)		5.76
Expired		(8,476	)		17.32		(1,225	)		9.00
Ending balance		361,470		$	9.16		458,573		$	10.54

The following summarizes information about stock options outstanding at September 30, 2015. The information excludes restricted stock units and awards.

								Weighted-Average
Outstanding:				Stock Options		Weighted-Average		Remaining
Range of Exercise Prices				Outstanding		Exercise Price		Contractual Life
$	5.76	$	9.21		221,669	$	5.76		3.28
$	9.22	$	15.47		108,611		12.40		2.15
$	15.48	$	22.66		18,794		19.28		7.75
$	22.67	$	32.36		12,396		26.18		2.19
					361,470	$	9.16		3.13

Exercisable:				Stock Options		Weighted-Average
Range of Exercise Prices				Exercisable		Exercise Price
$	5.76	$	9.21		164,759	$	5.76
$	9.22	$	15.47		101,941		12.51
$	15.48	$	22.66		15,164		19.60
$	22.67	$	32.36		10,896		26.36
					292,760	$	9.60

The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option pricing model with the assumptions as shown in the table below used for grants during the years ended December 31, 2014 and 2013. There were no grants of stock options during the nine months ended September 30, 2015.

	Nine Months Ended			Years Ended December 31,
	September 30, 2015			2014			2013
Expected volatility		N/A			34.25	%		34.12	%
Weighted-Average volatility		N/A			34.25	%		34.12	%
Expected dividends		0.0	%		0.0	%		0.0	%
Expected term (in years)		N/A			9.4			7.5
Risk-free rate		N/A			2.26	%		1.31	%
Weighted-average fair value (grant date)		N/A		$	13.49		$	7.83

The expected lives are based on the “simplified” method allowed by ASC Topic 718 “Compensation,” whereby the expected term is equal to the midpoint between the vesting period and the contractual term of the award.

The total intrinsic value of outstanding stock options and outstanding exercisable stock options was $10.6 million at September 30, 2015. The total intrinsic value of stock options exercised during the nine months ended September 30, 2015 and 2014 was $8.5 million and $1.1 million, respectively. The total fair value of stock options vested was $87 thousand and $125 thousand for the nine months ended September 30, 2015 and 2014, respectively. Unrecognized stock-based compensation expense related to stock options totaled $69 thousand at September 30, 2015. At such date, the weighted-average period over which this unrecognized stock option expense is expected to be recognized was 2.68 years.

The Company has unvested restricted stock award grants of 387,753 shares under the 2006 Plan at September 30, 2015. Unrecognized stock based compensation expense related to restricted stock awards totaled $6.6 million at September 30, 2015. At such date, the weighted-average period over which this unrecognized expense was expected to be recognized was 1.66 years. The following table summarizes the unvested restricted stock awards at September 30, 2015 and 2014.

	Nine Months Ended September 30,
	2015					2014
	Shares			Weighted- Average Grant Date Fair Value		Shares			Weighted- Average Grant Date Fair Value
Unvested at beginning		509,336		$	21.58		614,580		$	18.71
Issued		78,070			36.06		78,947			33.24
Forfeited		(4,150	)		31.83		(832	)		23.59
Vested		(195,503	)		20.74		(184,921	)		17.54
Unvested at end		387,753		$	24.81		507,774		$	21.33

Approved by shareholders in May 2011, the 2011 ESPP reserved 550,000 shares of common stock (as adjusted for stock dividends) for issuance to employees. Whole shares are sold to participants in the plan at 85% of the lower of the stock price at the beginning or end of each quarterly offering period. The 2011 ESPP is available to all eligible employees who have completed at least one year of continuous employment, work at least 20 hours per week and at least five months a year. Participants may contribute a minimum of $10 per pay period to a maximum of $6,250 per offering period or $25,000 annually (not to exceed more than 10% of compensation per pay period). At September 30, 2015, the 2011 ESPP had 437,727 shares remaining for issuance.

Included in salaries and employee benefits the Company recognized $3.7 million and $2.9 million in stock-based compensation expense for the nine months ended September 30, 2015 and 2014, respectively. Stock-based compensation expense is recognized ratably over the requisite service period for all awards.