Stock-based Compensation and Benefits

The Company provides stock-based compensation in accordance with the NBH Holdings Corp. 2009 Equity Incentive Plan (the “Plan”). The Plan provides the compensation committee of the board of directors of the Company the authority to grant, from time to time, awards of options, stock appreciation rights, restricted stock, restricted stock units, stock awards, or stock bonuses to eligible persons. The aggregate number of shares of stock which may be granted under the Plan was 5,750,000 and the maximum number of restricted shares and restricted share units that may be granted was 1,725,000.

To date, the Company has issued stock options and restricted stock under the Plan. The compensation committee sets the option exercise price at the time of grant but in no case is the exercise price less than the fair market value of a share of stock at the date of grant. The Company used information provided by third parties, including independent valuation specialists, as required by the Plan, to assist in the determination of estimates regarding fair values associated with the Company’s stock-based compensation issued prior to the Company’s initial public offering and listing on a national exchange, including contemporaneous valuations of grant date fair values. The Company is responsible for the assumptions used therein and the resulting values. The Company performed the valuations of all stock-based compensation grants made subsequent to the Company’s initial public offering.

The Company issued stock options and restricted stock during 2013 and 2012. The expense associated with the awarded stock options was measured at fair value using a Black-Scholes option-pricing model. The time vesting component of the restricted stock was valued at the same price as the common shares since they are assumed to be held beyond the vesting period. The market vesting component of the restricted stock was valued using a Monte Carlo Simulation with 100,000 simulation paths to assess the expected percentage of vested shares. A Geometric Brownian Motion was used for simulating the equity prices for a period of 10 years and if the restricted stock were not vested during the 10-year period, it was assumed they were forfeited.

The expense associated with the awarded stock options was measured at fair value using a Black-Scholes option-pricing model. The option awards vest on a graded basis over 1-4 years of continuous service and have 7-10 year contractual terms. Below are the weighted average assumptions used in the Black-Scholes option pricing model to determine fair value of the Company’s stock options granted in 2013:



	Black-Scholes
Risk-free interest rate	1.16	%
Expected volatility	32.09	%
Expected term (years)	6.70
Dividend yield	1.09	%

Prior to September 20, 2012, the Company’s shares were not publicly traded and had limited private trading. As a private entity, volatility was estimated using the calculated value method, whereby the expected volatility was calculated based on the median historical volatility of 17 comparable companies that were publicly traded, for a period commensurate with the expected term of the options. Upon becoming a public entity, the Company was subject to a change in accounting policy under the provisions of ASC Topic 718 Compensation-Stock Compensation, whereby expected volatility of grants, modifications, repurchases or cancellations that occur subsequent to the Company becoming a public entity were calculated using a time-based weighted migration of the Company’s own stock price volatility coupled with those of the peer group. The weighting will become increasingly dependent on the Company’s own stock-price volatility as time passes, until such time that the Company’s stock has a historical volatility equal in length to that of the expected term of the awards being measured. For awards granted after the Company became a publicly traded entity, expected volatility was calculated using a time-based weighted migration of the Company’s own stock price volatility coupled with those of a peer group of nine comparable publicly traded companies for a period commensurate with the expected term of the options. The risk-free rate for the expected term of the options was based on the U.S. Treasury yield curve at the date of grant and based on the expected term. The expected term was estimated to be the average of the contractual vesting term and time to expiration. The dividend yield was assumed to be zero for grants made prior to the initial public offering and for subsequent grants was assumed to be $0.05 per share per quarter in accordance with the Company’s dividend policy at the time of grant.

The following table summarizes the material vesting terms of the stock options granted in 2013:



	Number of options granted in 2013
Options are time-vested with 1/2 vesting on each of the third and fourth anniversary of the date of grant	167,750
Options are time-vested with 1/2 vesting in August 2014 and 1/2 vesting in August 2015	4,000
Options are time-vested with 1/2 vesting in June 2014 and 1/2 vesting in June 2015	3,000
Options are time-vested with 1/2 vesting in September 2016 and 1/2 vesting in September 2017	2,801
Total options granted in 2013	177,551

The following table summarizes option activity during 2013:



	Options		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term in Years	Aggregate Intrinsic Value
Outstanding at December 31, 2012	3,471,665		$	19.98	6.94	$	22,800
Granted	177,551		18.65
Forfeited	(54,897	)	19.43
Surrendered	(17,154	)	20.00
Exercised	(846	)	20.00
Expired	(60,833	)	20.00
Outstanding at December 31, 2013	3,515,486		$	19.92	6.13	$	5,183,567
Options fully vested and exercisable at December 31, 2013	2,832,583		$	20.00	5.93	$	—
Options expected to vest	651,979		$	19.63	6.81	$	4,864,278

Options granted during 2013, 2012, and 2011 had weighted average grant date fair values of $5.56, $8.43, and $5.58. The following table summarizes information about the Company's outstanding stock options at December 31, 2013:



Options outstanding						Options vested
Exercise price		Number outstanding	Weighted average remaining contractual life (years)	Weighted average exercise price		Number vested	Weighted average exercise price
$	18.09	117,480	9.33	$	18.09	—	$	—
$	18.23	30,000	8.55	$	18.23	—	$	—
$	20.00	3,338,805	5.97	$	20.00	2,832,583	$	20.00
$	20.48	2,801	9.85	$	20.48	—	$	—
$	20.54	26,400	9.60	$	20.54	—	$	—

Stock option expense is included in salaries and benefits in the accompanying consolidated statements of operations and totaled $2.2 million, $6.7 million, and $5.9 million for 2013, 2012, and 2011, respectively. At December 31, 2013, there was $1.3 million of total unrecognized compensation cost related to non-vested stock options granted under the Plan. The cost is expected to be recognized over a weighted average period of 0.8 years.

Expense related to non-vested restricted stock totaled $2.7 million, $6.3 million, and $6.6 million during 2013, 2012, and 2011, respectively, and is included in salaries and benefits in the Company’s consolidated statements of operations. As of December 31, 2013, there was $1.7 million of total unrecognized compensation cost related to non-vested restricted shares granted under the Plan, which is expected to be recognized over a weighted average period of 1.1 years. The following table summarizes restricted stock activity for 2013:



	Total Restricted Shares		Weighted Average Grant-Date Fair Value
Unvested at December 31, 2012	951,668		$	14.79
Vested	(10,997	)	18.23
Granted	146,218		18.25
Forfeited	(11,004	)	18.09
Surrendered	(11,425	)	18.20
Unvested at December 31, 2013	1,064,460		$	15.16