Stock-Based Compensation

6 Months Ended

Jun. 30, 2021

Share-based Payment Arrangement [Abstract]

PNMR has various stock-based compensation programs, including stock options, restricted stock, and performance shares granted under the Performance Equity Plan (“PEP”). Although certain PNM and TNMP employees participate in the PNMR plans, PNM and TNMP do not have separate employee stock-based compensation plans. The Company has not awarded stock options since 2010 and all employee stock options expired or were exercised as of February 2020. Certain restricted stock awards are subject to achieving performance or market targets. Other awards of restricted stock are only subject to time vesting requirements. Additional information concerning stock-based compensation under the PEP is contained in Note 12 of the Notes to Consolidated Financial Statements in the 2020 Annual Reports on Form 10-K.

Restricted stock under the PEP refers to awards of stock subject to vesting, performance, or market conditions rather than to shares with contractual post-vesting restrictions. Generally, the awards vest ratably over three years from the grant date of the award. However, awards with performance or market conditions vest upon satisfaction of those conditions. In addition, plan provisions provide that upon retirement, participants become 100% vested in certain stock awards. The vesting period for awards of restricted stock to non-employee members of the Board is one-year.

The stock-based compensation expense related to restricted stock awards without performance or market conditions to participants that are retirement eligible on the grant date is recognized immediately at the grant date and is not amortized. Compensation expense for other such awards is amortized over the shorter of the requisite vesting period or the period until the participant becomes retirement eligible. Compensation expense for performance-based shares is recognized ratably over the performance period as required service is provided and is adjusted periodically to reflect the level of achievement expected to be attained. Compensation expense related to market-based shares is recognized ratably over the measurement period, regardless of the actual level of achievement, provided the employees meet their service requirements. At June 30, 2021, PNMR had unrecognized expense related to stock awards of $6.4 million, which is expected to be recognized over an average of 1.8 years.

PNMR receives a tax deduction for certain stock option exercises during the period the options are exercised, generally for the excess of the price at which the options are sold over the exercise prices of the options, and a tax deduction for the value of restricted stock at the vesting date. All excess tax benefits and deficiencies are recorded to tax expense and classified as operating cash flows when used to reduce income taxes payable. See Note 14.

The grant date fair value for restricted stock and stock awards with internal Company performance targets is determined based on the market price of PNMR common stock on the date of the agreements reduced by the present value of future dividends that will not be received prior to vesting. The grant date fair value is applied to the total number of shares that are anticipated to vest, although the number of performance shares that ultimately vest cannot be determined until after the performance periods end. The grant date fair value of stock awards with market targets is determined using Monte Carlo simulation models, which provide grant date fair values that include an expectation of the number of shares to vest at the end of the measurement period.

The following table summarizes the weighted-average assumptions used to determine the awards grant date fair value:


	Six Months Ended June 30,
Restricted Shares and Performance Based Shares	2021			2020
Expected quarterly dividends per share	$	0.3275		$	0.3075
Risk-free interest rate	0.32		%	0.72		%

Market-Based Shares
Dividend yield	2.76		%	2.51		%
Expected volatility	33.69		%	19.41		%
Risk-free interest rate	0.29		%	0.72		%

The following table summarizes activity in restricted stock awards, including performance-based and market-based shares for the six months ended June 30, 2021:


	Restricted Stock
	Shares	Weighted- Average Grant Date Fair Value
Outstanding at December 31, 2020	168,061	$	40.77
Granted	213,515	44.08
Exercised	(207,913)	39.78
Forfeited	(1,741)	43.72

Outstanding at June 30, 2021	171,922	$	43.72

PNMR’s current stock-based compensation program provides for performance and market targets through 2023. Included in the above table are 124,941 previously awarded shares that were earned for the 2018-2020 performance measurement period and ratified by the Board in February 2021 (based upon achieving market and performance targets at near "maximum" levels). Excluded from the table above are 142,080, 142,047 and 152,414 shares for the three-year performance periods ending in 2021, 2022 and 2023 that will be awarded if all performance and market criteria are achieved at maximum levels and all executives remain eligible.

The following table provides additional information concerning restricted stock activity, including performance-based and market-based shares, and stock options:


	Six Months Ended June 30,
Restricted Stock	2021		2020
Weighted-average grant date fair value	$	44.08	$	36.73
Total fair value of restricted shares that vested (in thousands)	$	9,890	$	11,740

Stock Options


Total intrinsic value of options exercised (in thousands)	$	—	$	84