11.STOCK-BASED COMPENSATION 

The Company’s 2011 Stock Incentive Plan (the “2011 Plan”) provides for the granting of stock-based awards in the form of incentive stock options (“incentive stock options,” intended to comply with the requirements of Section 422 of the Internal Revenue Code of 1986), non-statutory stock options, and nonvested stock to attract, retain, and reward key employees of the Company and its subsidiaries.  The Company issues new shares to satisfy stock-based awards.  Under the plan, the option price cannot be less than the fair market value of the stock on the grant date, and the stock option’s maximum term is ten years from the date of grant and vests in equal annual installments of 20% over a five year vesting schedule.  The 2011 Plan became effective on January 1, 2011 after its approval by shareholders at the annual meeting of shareholders held on April 26, 2011.  The following table summarizes the shares available in the 2011 Plan as of March 31, 2014:  

 

 

 

In connection with the acquisition of StellarOne, each outstanding option to acquire StellarOne common stock, whether or not exercisable, was assumed by the Company and converted into an option to acquire the same number of whole shares of the Company’s commons stock, subject to the exchange ratio of 0.9739.   The exercise price per share of each new option was equal to the price under the original StellarOne option divided by the exchange ratio of 0.9739.   Each converted StellarOne stock option has the same terms and conditions as were in effect prior to the completion of the acquisition.  Restricted StellarOne stock awards which were unvested and outstanding prior to the merger were accelerated and converted into restricted stock awards of the Company on the same basis as stock options.  Restricted stock was issued from existing StellarOne stock incentive plans, and subsequent awards will be issued from the 2011 Plan.

 

For the three months ended March 31, 2014 and 2013, the Company recognized stock-based compensation expense (included in salaries and benefits expense) of approximately $374,000 and $318,000 ($270,000 and $235,000 net of tax), respectively, or approximately $0.01  per common share for both three months ended March 31, 2014 and 2013. 

 

Stock Options

 

The following table summarizes the stock option activity for the three months ended March 31, 2014:

 

 

 

 

 

The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option valuation model.  The model uses variables which include the historical dividend yield of the Company’s common stock, the average contractual life and vesting schedule of the option, the historic volatility of the Company’s common stock price, and the risk-free interest rate at the time the option was granted.  Other than options that were assumed and converted upon completion of the StellarOne merger, the Company has not granted incentive compensation in the form of options since February 2012.

 

 

 

The following table summarizes information concerning stock options issued to the Company’s employees that are vested or are expected to vest and stock options exercisable as of March 31, 2014:

 

 

Nonvested Stock

The 2011 Plan permits the granting of nonvested stock but limits such grants to one-third of the aggregate number of total awards granted.  This equity component of compensation is divided between restricted (time-based) stock grants and performance-based stock grants.  Generally, the restricted stock vests 50% on each of the third and fourth anniversaries from the grant date.  The performance-based stock is subject to vesting based on achieving certain performance metrics; the grant of performance-based stock is subject to approval by the Company’s Compensation Committee in its sole discretion.  The value of the nonvested stock awards is calculated by multiplying the fair market value of the Company’s common stock on the grant date by the number of shares awarded.  Employees have the right to vote the shares and to receive cash or stock dividends (restricted stock), if any, except for the nonvested stock under the performance-based component (performance stock).

 

The following table summarizes the restricted stock activity for the three months ended March 31, 2014:

 

 

The estimated unamortized compensation expense, net of estimated forfeitures, related to nonvested stock and stock options issued and outstanding as of March 31, 2014 that will be recognized in future periods is as follows (dollars in thousands):