19.          STOCK BASED COMPENSATION

 

Stock-based compensation is accounted for in accordance with FASB ASC Topic 718 for Compensation — Stock Compensation. The Company establishes fair value for its equity awards to determine their cost. The Company recognizes the related expense for employees over the appropriate vesting period, or when applicable, service period, using the straight-line method. However, consistent with the guidance, the amount of stock-based compensation recognized at any date must at least equal the portion of the grant date value of the award that is vested at that date. As a result, it may be necessary to recognize the expense using a ratable method.

 

The Company’s 2008 Equity Incentive Plan (“EIP”) authorizes the issuance of shares of common stock pursuant to awards that may be granted in the form of stock options to purchase common stock (“options”) and awards of shares of common stock (“stock awards”). The purpose of the Company’s stock-based incentive plans is to attract and retain personnel for positions of substantial responsibility and to provide additional incentive to certain officers, directors and employees. In order to fund grants of stock awards under the EIP, the Equity Incentive Plan Trust (the “EIP Trust”) purchased 1,612,386 shares of Company common stock in the open market for approximately $19.0 million during the year ended December 31, 2008. The Company made sufficient contributions to the EIP Trust to fund the stock purchases. The acquisition of these shares by the EIP Trust reduced the Company’s outstanding additional paid in capital. The EIP shares will generally vest at a rate of 20% over five years. As of December 31, 2013, 644,775 shares were fully vested and 338,900 shares were forfeited. All grants that were issued contain a service condition in order for the shares to vest. Awards of common stock include awards to certain officers of the Company that will vest only if the Company achieves a return on average assets of 1% or if the Company achieves a return on average assets within the top 25% of the SNL index of nationwide thrifts with total assets between $1.0 billion and $10.0 billion nationwide in the fifth full year subsequent to the grant.

 

Compensation expense related to the stock awards is recognized ratably over the five-year vesting period in an amount which totals the market price of the Company’s stock at the grant date. The expense recognized for the year ended December 31, 2013 was $1.0 million compared to $1.5 million for the year ended December 31, 2012 and $1.6 million for the year ended December 31, 2011. The decrease in compensation expense for the year ended December 31, 2013 compared to the same period last year was due to the reversal of $655 thousand of expense for performance based awards as management determined that it was no longer probable that the performance threshold would be met.

 

The following table summarizes the non-vested stock award activity for the year ended December 31, 2013:

 

Summary of Non-vested Stock Award Activity		Number of  Shares		Weighted  Average Grant Price
Non-vested Stock Awards outstanding, January 1, 2013		540,175		$	9.66
Issued		140,000		9.24
Vested		(160,575	)	10.74
Forfeited		(4,400	)	9.41
Non-vested Stock Awards outstanding, December 31, 2013		515,200		9.21

 

The following table summarizes the non-vested stock award activity for the year ended December 31, 2012:

 

Summary of Non-vested Stock Award Activity		Number of  Shares		Weighted  Average Grant Price
Non-vested Stock Awards outstanding, January 1, 2012		691,900		$	10.14
Issued		131,875		9.12
Vested		(149,600	)	10.61
Forfeited		(134,000	)	10.54
Non-vested Stock Awards outstanding, December 31, 2012		540,175		9.66

 

The fair value of the 160,575 shares that vested during the year ended December 31, 2013 was $1.5 million. The fair value of the 149,600 shares vested during the year ended December 31, 2012 was $1.3 million.

 

The EIP authorizes the grant of options to officers, employees, and directors of the Company to acquire shares of common stock with an exercise price equal to the fair value of the common stock at the grant date. Options expire ten years after the date of grant, unless terminated earlier under the option terms. Options are granted at the then fair market value of the Company’s stock. The options were valued using the Black-Scholes option pricing model. During the year ended December 31, 2013, the Company granted 609,500 options compared to 586,000 options granted during the year ended December 31, 2012. All options issued contain conditions requiring the participant’s continued service. The options generally vest and are exercisable over five years. Compensation expense for the options totaled $1.6 million for the year ended December 31, 2013 compared $1.4 million for the year ended December 31, 2012 and $1.2 million for the year ended December 31, 2011.

 

A summary of option activity as of December 31, 2013 and changes during the twelve month period is presented below:

 

		Number of Options		Weighted Exercise Price per Shares
January 1, 2013		2,333,300		$	10.34
Granted		609,500		9.24
Exercised		(19,200	)	8.74
Forfeited		(20,650	)	9.42
Expired		(26,100	)	11.03
December 31, 2013		2,876,850		10.12

 

A summary of option activity as of December 31, 2012 and changes during the twelve month period is presented below:

 

		Number of Options		Weighted Exercise Price per Shares
January 1, 2012		2,086,100		$	10.74
Granted		586,000		9.12
Exercised		(12,050	)	8.36
Forfeited		(179,680	)	10.22
Expired		(147,070	)	11.39
December 31, 2012		2,333,300		10.34

 

The weighted average remaining contractual term was approximately 6.64 years and the aggregate intrinsic value was $3.3 million for options outstanding as of December 31, 2013.  As of December 31, 2013, exercisable options totaled 1,552,040 with an average weighted exercise price of $11.00 per share, a weighted average remaining contractual term of approximately 5.22 years, and an aggregate intrinsic value of $911 thousand.  The weighted average remaining contractual term was approximately 7.00 years and the aggregate intrinsic value was $730 thousand for options outstanding as of December 31, 2012.  As of December 31, 2012, exercisable options totaled 1,132,860 with an average weighted exercise price of $11.24 per share, a weighted average remaining contractual term of approximately 5.91 years, and an aggregate intrinsic value of $175 thousand.

 

Significant weighted average assumptions used to calculate the fair value of the options for the years ended December 31, 2013, 2012, and 2011 are as follows:

 

		For the Year Ended December 31,
		2013			2012			2011
Weighted average fair value of options granted		$	3.37		$	3.50		$	3.29
Weighted average risk-free rate of return		1.08		%	1.41		%	2.17		%
Weighted average expected option life in months		78			78			78
Weighted average expected volatility		34.69		%	36.08		%	35.18		%
Expected dividends		$	—		$	—		$	—

 

As of December 31, 2013, there was $3.6 million of total unrecognized compensation cost related to options and $2.5 million in unrecognized compensation cost related to non-vested stock awards granted under the EIP. As of December 31, 2012, there was $3.2 million of total unrecognized compensation cost related to options and $3.3 million in unrecognized compensation cost related to non-vested stock awards granted under the EIP. The average weighted lives for the option expense were 3.40 and 3.25 years as of December 31, 2013 and December 31, 2012, respectively. The average weighted lives for the stock award expense were 3.23 and 2.78 years at December 31, 2013 and December 31, 2012, respectively.