Stock-Based Compensation Plans

9 Months Ended

Sep. 30, 2018

Equity-Based Compensation Plans [Abstract]

Stock-Based Compensation Plans

Note 5 – Stock-Based Compensation Plans

The Company recorded total stock-based compensation expense of $374,000 and $204,000 for the three months ended September 30, 2018 and 2017, respectively, and $1,201,000 and $860,000 for the nine months ended September 30, 2018 and 2017, respectively. Of the $1,201,000 in expense that was recorded in 2018, approximately $352,000 related to the June 1, 2018 director equity grants, which are classified as “other operating expenses” in the Consolidated Statements of Income. The remaining $849,000 in expense relates to the employee equity grants discussed below and is recorded as “salaries expense.” Stock based compensation is reflected as an adjustment to cash flows from operating activities on the Company’s consolidated statement of cash flows. The Company recognized $281,000 and $318,000 of income tax benefits related to stock based compensation expense in its consolidated income statement for the nine months ended September 30, 2018 and 2017, respectively.

At September 30, 2018, the Company had two stock-based compensation plans – 1) the First Bancorp 2014 Equity Plan and 2) the First Bancorp 2007 Equity Plan. The Company’s shareholders approved each plan. The First Bancorp 2014 Equity Plan became effective upon the approval of shareholders on May 8, 2014. As of September 30, 2018, the First Bancorp 2014 Equity Plan was the only plan that had shares available for future grants, and there were 745,104 shares remaining available for grant.

The First Bancorp 2014 Equity Plan is intended to serve as a means to attract, retain and motivate key employees and directors and to associate the interests of the Plan’s participants with those of the Company and its shareholders. The First Bancorp 2014 Equity Plan allows for both grants of stock options and other types of equity-based compensation, including stock appreciation rights, restricted stock, restricted performance stock, unrestricted stock, and performance units.

Recent equity grants have had service vesting conditions. Compensation expense for these grants is recorded over the requisite service periods. No compensation cost is recognized for grants that do not vest and any previously recognized compensation cost is reversed at forfeiture. The Company issues new shares of common stock when options are exercised.

Certain of the Company’s equity grants contain terms that provide for a graded vesting schedule whereby portions of the award vest in increments over the requisite service period. The Company recognizes compensation expense for awards with graded vesting schedules on a straight-line basis over the requisite service period for each incremental award. Over the past five years, there have only been minimal amounts of forfeitures, and therefore the Company assumes that all awards granted with service conditions only will vest.

As it relates to director equity grants, the Company grants common shares, valued at approximately $32,000, to each non-employee director (currently 11 in total) in June of each year. Compensation expense associated with these director grants is recognized on the date of grant since there are no vesting conditions. On June 1, 2018, the Company granted 8,393 shares of common stock to non-employee directors (763 shares per director), at a fair market value of $41.93 per share, which was the closing price of the Company’s common stock on that date and which resulted in $352,000 in expense. On June 1, 2017, the Company granted 11,190 shares of common stock to non-employee directors (1,119 shares per director), at a fair market value of $28.59 per share, which was the closing price of the Company’s common stock on that date and which resulted in $320,000 in expense.

The Company’s senior officers receive their annual bonuses earned under the Company’s annual incentive plan in a mix of 50% cash and 50% stock, with the stock being subject to a three year vesting term. In the last three years, a total of 54,529 shares of restricted stock have been granted related to performance in the preceding fiscal years (net of an immaterial amount of forfeitures). Total compensation expense associated with those grants was $1.4 million and is being recognized over the respective vesting periods. For the three months ended September 30, 2018 and 2017, total compensation expense related to these grants was $73,000 and $66,000, respectively, and for the nine months ended September 30, 2018 and 2017, total compensation expense was $220,000 and $216,000, respectively. The Company expects to record $73,000 in compensation expense during the remaining quarter of 2018.

In the last three years, the Compensation Committee also granted 135,189 shares of stock to various employees of the Company to promote retention (net of an immaterial amount of forfeitures). The total value associated with these grants amounted to $3.9 million, which is being recorded as an expense over their three year vesting periods. For the three months ended September 30, 2018 and 2017, total compensation expense related to these grants was $301,000 and $138,000, respectively, and for the nine months ended September 30, 2018 and 2017, total compensation expense was $629,000 and $324,000, respectively. The Company expects to record $305,000 in compensation expense during the remaining quarter of 2018. All grants were issued based on the closing price of the Company’s common stock on the date of the grant.

The following table presents information regarding the activity the first nine months of 2018 related to the Company’s outstanding restricted stock grants:

	Long-Term Restricted Stock
	Number of Units			Weighted-Average Grant-Date Fair Value
Nonvested at January 1, 2018		103,063		$	24.08
Granted during the period		66,060			40.04
Vested during the period		(16,533	)		17.31
Forfeited or expired during the period		(2,977	)		25.21
Nonvested at September 30, 2018		149,613		$	31.85

In years prior to 2009, stock options were the primary form of equity grant utilized by the Company. The stock options had a term of ten years. Upon a change in control (as defined in the plans), unless the awards remain outstanding or substitute equivalent awards are provided, the awards become immediately vested.

At September 30, 2018, there were 9,000 stock options outstanding related to the Company’s two equity-based plans, all with an exercise price of $14.35.

The following table presents information regarding the activity for the first nine months of 2018 under the Company’s stock options outstanding:

	Options Outstanding
	Number of Shares			Weighted- Average Exercise Price		Weighted- Average Contractual Term (years)		Aggregate Intrinsic Value
Balance at January 1, 2018		38,689		$	16.09
Granted		—			—
Exercised		(29,689	)		16.61			$	659,743
Forfeited		—			—
Expired		—			—
Outstanding at September 30, 2018		9,000		$	14.35		0.7	$	235,440
Exercisable at September 30, 2018		9,000		$	14.35		0.7	$	235,440

During the three and nine months ended September 30, 2018, the Company received $0 and $324,000, respectively, as a result of stock option exercises. During the three and nine months ended September 30, 2017, the Company received $0 and $287,000, respectively, as a result of stock option exercises.