Stock-Based Compensation Plans

12 Months Ended

Dec. 31, 2018

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Stock-Based Compensation Plans

8. Stock-Based Compensation Plans.

The Company has two Stock Option Plans (the 2006 Stock Incentive Plan and the 2016 Equity Incentive Option Plan) under which options for shares of common stock were granted to directors, officers and key employees. The 2016 plan permits the grant of stock options, stock appreciation rights, restricted stock awards, restricted stock units, or stock awards. The options awarded under the plans have similar characteristics. All stock options are non-qualified and expire ten years from the date of grant. Stock based compensation awarded to directors, officers and employees are exercisable immediately or become exercisable in cumulative installments of 20% or 25% at the end of each year following the date of grant. When stock options are exercised the Company issues new shares after receipt of exercise proceeds and taxes due, if any, from the grantee. The number of common shares available for future issuance was 490,310 at December 31, 2018.

The Company utilizes the Black-Scholes valuation model for estimating fair value of stock compensation for options awarded to officers and employees. Each grant is evaluated based upon assumptions at the time of grant. The assumptions were no dividend yield, expected volatility between 29% and 43%, risk-free interest rate of .6% to 2.9% and expected life of 3.0 to 7.0 years.

The dividend yield of zero is based on the fact that the Company does not pay cash dividends and has no present intention to pay cash dividends. Expected volatility is estimated based on the Company’s historical experience over a period equivalent to the expected life in years. The risk-free interest rate is based on the U.S. Treasury constant maturity interest rate at the date of grant with a term consistent with the expected life of the options granted. The expected life calculation is based on the observed and expected time to exercise options by the employees.

As previously disclosed, Thompson S. Baker II resigned from his position as CEO and from the board of directors on March 13, 2017. In recognition of his outstanding service to the Company, the Board approved the vesting of all of Mr. Baker's outstanding FRP stock options, which expired 90 days following the termination of his employment. The vesting of Mr. Baker’s outstanding FRP options that were issued prior to the spin-off required Patriot to record modification stock compensation expense of $150,000. FRP reimbursed Patriot for this cost under the transition services agreement. The vesting of Mr. Baker’s outstanding FRP options that were issued subsequent to the spin-off required modified stock compensation expense of $41,000.

On May 21, 2018, under the 2016 Equity Incentive Plan change-in-control clause, all unvested stock options held by the Company’s named executive officers became vested and fully exercisable. Included in stock compensation expense was $402,000 for the vesting of option grants from 2016 and 2017 due to the asset disposition.

The Company recorded the following stock compensation expense in its consolidated statement of income (in thousands):

	Year ended		Year ended
	December 31,		December 31,
	2018		2017
Stock option grants	$	607		268
Annual director stock award(s)		1,055		445
	$	1,662		713

A summary of changes in outstanding options is presented below (in thousands, except share and per share amounts):

				Weighted		Weighted		Weighted
	Number			Average		Average		Average
	of			Exercise		Remaining		Grant Date
Options	Shares			Price		Term (yrs)		Fair Value(000's)
Outstanding at
January 1, 2017		236,385		$	25.35		6.1	$	2,440
Granted		30,255		$	43.45			$	440
Modification		—		$	30.21			$	(137	)
Exercised		(92,130	)	$	24.93			$	(842	)
Outstanding at
December 31, 2017		174,510		$	28.70		6.0	$	1,901
Granted		29,260		$	45.97			$	427
Exercised		(56,232	)	$	25.17			$	(546	)
Outstanding at
December 31, 2018		147,538		$	33.48		6.7	$	1,782
Exercisable at
December 31, 2018		119,714		$	31.59		6.1	$	1,346
Vested during
twelve months ended
December 31, 2018		46,030						$	669

The following table summarizes information concerning stock options outstanding at December 31, 2018:

	Shares	Weighted			Weighted
Range of Exercise	under	Average			Average
Prices per Share	Option	Exercise Price			Remaining Life
Non-exercisable:
$24.76 - $37.25	3,542			26.97		5.9
$37.26 - $45.97	24,282			43.74		9.5
	27,824		$	41.61		9.0	Years
Exercisable:
$16.71 - $24.75	14,100			16.72		2.9
$24.76 - $37.25	32,753			21.40		3.7
$37.26 - $45.97	72,861			39.04		7.8
	119,714		$	31.59		6.1	Years
Total	147,538		$	33.48		6.7	Years

The aggregate intrinsic value of exercisable in-the-money options was $1,727,000 and the aggregate intrinsic value of outstanding in-the-money options was $1,849,000 based on the market closing price of $46.01 on December 31, 2018 less exercise prices.

The unrecognized compensation cost of options granted to FRP employees but not yet vested as of December 31, 2018 was $403,000, which is expected to be recognized over a weighted-average period of 4.3 years.

Gains of $1,977,000 were realized by option holders during the year ended December 31, 2018. Patriot realized the tax benefits of $756,000 of these gains because these options were exercised by Patriot employees for options granted prior to the spin-off.