Note 7. Stock Options and Restricted Shares

The shareholders of Pinnacle Financial adopted the 2018 Omnibus Equity Incentive Plan (the "2018 Plan") at the annual shareholder's meeting on April 17, 2018. The 2018 Plan permits Pinnacle Financial to reissue outstanding awards that are subsequently forfeited, settled in cash, withheld by Pinnacle Financial to cover withholding taxes or expire unexercised and returned to the 2018 Plan. At March 31, 2019, there were approximately 1.3 million shares available for issuance under the 2018 Plan.

The BNC Bancorp 2013 Amended and Restated Omnibus Stock Incentive Plan (the "BNC Plan") was assumed by Pinnacle Financial in connection with its merger with BNC. As of March 31, 2019, the BNC Plan had approximately 9,000 shares remaining available for issuance to existing associates that were previously BNC associates. No new awards may be granted under plans other than the 2018 Plan except for shares remaining available for issuance to the former BNC associates pursuant to the BNC Plan.

Upon the acquisition of CapitalMark, Pinnacle Financial assumed approximately 858,000 stock options under the CapitalMark Option Plan. No further shares remain available for issuance under the CapitalMark Option Plan. At March 31, 2019, all of the remaining options outstanding were granted under the CapitalMark Option Plan.

Common Stock Options

A summary of the stock option activity within the equity incentive plans during the three months ended March 31, 2019 and information regarding expected vesting, contractual terms remaining, intrinsic values and other matters is as follows:



	Number		Weighted-Average Exercise Price		Weighted-Average Contractual Remaining Term (in years)	Aggregate Intrinsic Value (000's)
Outstanding at December 31, 2018	176,709		$	22.77	2.23	$	4,123	⁽¹⁾
Granted	—
Exercised	(5,200	)
Forfeited	—
Outstanding at March 31, 2019	171,509		$	22.70	3.06	$	5,488	⁽²⁾
Options exercisable at March 31, 2019	171,509		$	22.70	3.06	$	5,488	⁽²⁾


(1)	The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the quoted closing price of Pinnacle Financial common stock of $46.10 per common share at December 31, 2018 for the 176,709 options that were in-the-money at December 31, 2018.


(2)	The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the quoted closing price of Pinnacle Financial common stock of $54.70 per common share at March 31, 2019 for the 171,509 options that were in-the-money at March 31, 2019.

Compensation costs related to stock options granted under Pinnacle Financial's equity incentive plans have been fully recognized and all outstanding option awards are fully vested.

Restricted Share Awards

A summary of activity for unvested restricted share awards for the three months ended March 31, 2019 is as follows:



	Number		Grant Date Weighted-Average Cost
Unvested at December 31, 2018	692,806		$	55.19
Shares awarded	192,110
Restrictions lapsed and shares released to associates/directors	(212,247	)
Shares forfeited ⁽¹⁾	(11,970	)
Unvested at March 31, 2019	660,699		$	53.30


(1)	Represents shares forfeited due to employee termination and/or retirement. No shares were forfeited due to failure to meet performance targets.

Pinnacle Financial has granted restricted share awards to associates, (including members of executive management) and outside directors with a combination of time and, in the case of the annual award to the members of the Company's leadership team, performance vesting criteria. Compensation expense associated with time-based vesting restricted share awards is recognized over the time period that the restrictions associated with the awards lapse on a straight-line basis based on the total cost of the award. The following table outlines restricted stock grants that were made, grouped by similar vesting criteria, during the three months ended March 31, 2019. The table reflects the life-to-date activity for these awards:



Grant Year	Group ⁽¹⁾	Vesting Period in years	Shares awarded	Restrictions Lapsed and shares released to participants	Shares Forfeited by participants ⁽⁴⁾	Shares Unvested
Time Based Awards
2019	Associates ⁽²⁾	3 - 5	175,561	169	2,616	172,776
Outside Director Awards ⁽³⁾
2019	Outside directors	1	16,549	—	—	16,549

(1)

Groups include employees (referred to as associates above) and outside directors. When the restricted shares are awarded, a participant receives voting rights and forfeitable dividend rights with respect to the shares, but is not able to transfer the shares until the restrictions have lapsed. Once the restrictions lapse, the participant is taxed on the value of the award and may elect to sell some shares (or have Pinnacle Financial withhold some shares) to pay the applicable income taxes associated with the award. Alternatively, the recipient can pay the withholding taxes in cash. For time-based vesting restricted share awards, dividends paid on shares for which the forfeiture restrictions do not lapse will be recouped by Pinnacle Financial at the time of termination. For performance-based vesting awards to Pinnacle Financial's directors, dividends are placed into escrow until the forfeiture restrictions on such shares lapse.


(2)	The forfeiture restrictions on these restricted share awards lapse in equal annual installments on the anniversary date of the grant.


(3)	Restricted share awards are issued to the outside members of the board of directors in accordance with their board compensation plan. Restrictions lapse on February 29, 2020 based on each individual board member meeting their attendance goals for the various board and board committee meetings to which each member was scheduled to attend.


(4)	These shares represent forfeitures resulting from recipients whose employment or board membership is terminated during the year-to-date period ended March 31, 2019. Any dividends paid on shares for which the forfeiture restrictions do not lapse will be recouped by Pinnacle Financial at the time of termination or will not be distributed from escrow, as applicable.

Restricted Share Units

The following table details the restricted share unit awards (all of which are performance units) outstanding at March 31, 2019:



	Units Awarded
Grant year	Named Executive Officers (NEOs) ⁽¹⁾	Leadership Team other than NEOs	Applicable Performance Periods associated with each tranche (fiscal year)	Service period per tranche (in years)	Subsequent holding period per tranche (in years)	Period in which units to be settled into shares of common stock⁽²⁾
2019	166,211-249,343	52,244	2019	2	3	2024
			2020	2	2	2024
			2021	2	1	2024
2018	96,878-145,339	25,990	2018	2	3	2023
			2019	2	2	2023
			2020	2	1	2023
2017	72,537-109,339	24,916	2017	2	3	2022
			2018	2	2	2022
			2019	2	1	2022
2016	73,474-110,223	26,683	2016	2	3	2021
			2017	2	2	2021
			2018	2	1	2021
2015	58,200-101,850	28,378	2015	2	3	2020
			2016	2	2	2020
			2017	2	1	2020


(1)	The named executive officers are awarded a range of awards that may be earned based on attainment of goals between a target level of performance and a maximum level of performance.


(2)	Restricted share unit awards granted in 2019, 2018, 2017, 2016 and 2015, if earned, will be settled in shares of Pinnacle Financial Common Stock in the periods noted in the table, if Pinnacle Bank's ratio of non-performing assets to the assets is less than amounts established in the applicable award agreement.

Stock compensation expense, net of the impact of income taxes, related to both restricted share awards and restricted share units for the three months ended March 31, 2019 was $4.9 million compared to $4.4 million for the three months ended March 31, 2018. As of the March 31, 2019, the total compensation cost related to unvested restricted share awards and restricted share units not yet recognized was $49.1 million. This expense is expected to be recognized over a weighted-average period of 1.77 years.