11.STOCK-BASED COMPENSATION

The Company’s 2011 Stock Incentive Plan (the “2011 Plan”) provides for the granting of stock-based awards to key employees of the Company and its subsidiaries in the form of: (i) incentive stock options intended to comply with the requirements of Section 422 of the Internal Revenue Code of 1986 (“incentive stock options”); (ii) non-qualified stock options; (iii) restricted stock, and (iv) other stock-based awards.  The Company issues new shares to satisfy stock-based awards, and the option price cannot be less than the fair market value of the stock on the grant date.  A stock option’s maximum term is ten years from the date of grant.  No stock options have been granted since February 2012, and restricted stock and other stock-based awards typically vest in varying annual installments over a three to five year vesting schedule.  The 2011 Plan was approved by the Company’s Board of Directors with an effective date of January 1, 2011, subject to shareholder approval that was received at the annual meeting of shareholders held on April 26, 2011.

 

Based on the recommendation of the Compensation Committee of the Company’s Board of Directors, on January 29, 2015, the Company’s Board of Directors adopted, subject to shareholder approval, the Union Bankshares Corporation Stock and Incentive Plan (the “Amended and Restated SIP”), which amends and restates the 2011 Plan.  The Amended and Restated SIP was approved by the Company’s shareholders and became effective on April 21, 2015.  The Amended and Restated SIP amends the 2011 Plan to, among other things, increase the maximum number of shares of the Company’s common stock issuable under the plan from 1,000,000 to 2,500,000 and add non-employee directors of the Company and certain subsidiaries, as well as regional advisory boards, as potential participants in the plan.

 

The following table summarizes the shares granted and available in the 2011 Plan as of March 31, 2015; there were no shares granted or available under the Amended and Restated SIP as of March 31, 2015 because the Amended and Restated SIP was not effective as of such date.

 

 

For the three months ended March 31, 2015 and 2014, the Company recognized stock-based compensation expense (included in salaries and benefits expense) of approximately $390,000 and $374,000 ($281,000 and $270,000 net of tax), respectively. Stock-based compensation expense represents approximately $0.01 per common share for both the three months ended March 31, 2015 and 2014. 

 

Stock Options

 

The following table summarizes the stock option activity for the three months ended March 31, 2015:

 

 

 

 

 

 

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, 2015:

 

 

Restricted Stock

 

The 2011 Plan permits the granting of restricted stock awards but is limited 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 date of the grant.  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 at its sole discretion.  The value of the restricted stock awards was calculated by multiplying the fair market value of the Company’s common stock on 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). Nonvested shares of restricted stock are included in the computation of basic earnings per share. The following table summarizes the restricted stock activity for the quarter ended March 31, 2015:

 

 

 

The estimated unamortized compensation expense, net of estimated forfeitures, related to nonvested stock and stock options issued and outstanding as of March 31, 2015 that will be recognized in future periods is as follows (dollars in thousands):