Stock Options and Restricted Shares

9 Months Ended

Sep. 30, 2020

Share-based Payment Arrangement [Abstract]

Note 7. Stock Options and Restricted Shares

The 2018 Omnibus Equity Incentive Plan (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 September 30, 2020, there were approximately 808,000 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 September 30, 2020, there were no shares remaining available for issuance from the BNC Plan. No new awards may be granted under equity incentive plans of Pinnacle Financial other than the 2018 Plan.

Upon the acquisition of CapitalMark, Pinnacle Financial assumed approximately 858,000 stock options under the CapitalMark Option Plan. No further awards remain available for issuance under the CapitalMark Option Plan. At September 30, 2020, 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 nine months ended September 30, 2020 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, 2019	119,274	$	23.45	2.85	$	4,837	(1)
Granted	—
Exercised	(9,787)
Forfeited	—
Outstanding at September 30, 2020	109,487	$	23.44	2.10	$	1,331	(2)
Options exercisable at September 30, 2020	109,487	$	23.44	2.10	$	1,331	(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 $64.00 per common share at December 31, 2019 for the 119,274 options that were in-the-money at December 31, 2019.

(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 $35.59 per common share at September 30, 2020 for the 109,487 options that were in-the-money at September 30, 2020.

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 nine months ended September 30, 2020 is as follows:


	Number	Grant Date Weighted-Average Cost
Unvested at December 31, 2019	555,296	$	57.04
Shares awarded	265,049
Restrictions lapsed and shares released to associates/directors	(198,599)
Shares forfeited (1)	(22,293)
Unvested at September 30, 2020	599,453	$	57.60

(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 and outside directors with a time-based 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 nine months ended September 30, 2020. 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
2020	Associates (2)	3	-	5	246,524	116	5,076	241,332
Outside Director Awards (3)
2020	Outside directors			1	18,525	—	—	18,525

(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 28, 2021 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 was terminated during the year-to-date period ended September 30, 2020. 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.

Performance-based Vesting Restricted Stock Units

The following table details the performance-based vesting restricted stock unit awards outstanding at September 30, 2020:


	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)
2020	136,137	—	204,220	59,648	2020	2	3	2025
					2021	2	2	2025
					2022	2	1	2025
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

(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, 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 its loans plus ORE is less than amounts established in the applicable award agreement.

During the nine months ended September 30, 2020, the restrictions associated with 129,723 performance-based vesting restricted stock unit awards granted in prior years lapsed, based on the terms of the agreement and approval by Pinnacle Financial's Human Resources and Compensation Committee, and were settled into shares of Pinnacle Financial common stock with 43,996 shares being withheld to pay the taxes associated with the settlement of those shares.

Stock compensation expense related to both restricted share awards and restricted share units for the three and nine months ended September 30, 2020 was $4.4 million and $14.1 million, respectively, compared to $5.0 million and $15.1 million, respectively, for the three and nine months ended September 30, 2019. As of the September 30, 2020, the total compensation cost related to unvested restricted share awards and performance-based vesting restricted stock units not yet recognized was $40.7 million. This expense, if the underlying units are earned, is expected to be recognized over a weighted-average period of 1.86 years.