Atlantic Union Bankshares Corporation Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

EMPLOYEE BENEFITS AND STOCK BASED COMPENSATION

EMPLOYEE BENEFITS AND STOCK BASED COMPENSATION

12 Months Ended

Dec. 31, 2017

Employee Benefits and Share-based Compensation, Noncash [Abstract]

EMPLOYEE BENEFITS AND STOCK BASED COMPENSATION

The Company has a 401(k) Plan designed to qualify under Section 401 of the Code that allows employees to defer a portion of their salary compensation as savings for retirement. The 401(k) Plan provides for the Company to match employee contributions based on each employee’s elected contribution percentage. For each employee’s 1% through 3% dollar contributions, the Company will match 100% of such dollar contributions, and for each employee’s 4% through 5% dollar contributions, the Company will match 50% of such dollar contributions. All employees are eligible to participate in the 401(k) Plan after meeting minimum age and period of service requirements. The Bank also has an ESOP. All full and part-time employees of the Bank with 1,000 hours of service are eligible to participate in the ESOP. The Company makes discretionary profit sharing contributions into the 401(k) Plan, ESOP, and in cash. Company discretionary contributions to both the 401(k) Plan and the ESOP are allocated to participant accounts in proportion to each participant’s compensation and vest according to the respective plan's vesting schedule. Employee contributions to the ESOP are not allowed.

The following 401(k) Plan match and other discretionary contributions were made to the Company’s employees, in accordance with the plans described above, in 2017, 2016, and 2015 (dollars in thousands):



	2017		2016		2015
401(k) Plan	$	3,505	$	3,263	$	3,120
ESOP	1,255		1,425		1,146
Cash	1,461		1,496		1,146
Total	$	6,221	$	6,184	$	5,412

The Company maintains certain deferred compensation arrangements with employees and certain current and former members of the Bank’s Boards of Directors. Under these deferred compensation plans, the Company had an obligation of $11.1 million at December 31, 2017 and $10.4 million at December 31, 2016, respectively. The Company owns life insurance policies on plan beneficiaries as an informal funding vehicle to meet future benefit obligations.

On January 29, 2015, the Company’s Board of Directors adopted the Union Bankshares Corporation Stock and Incentive Plan (the “Amended and Restated SIP”), which amended and restated the former equity compensation plan (the “2011 Plan”). The Amended and Restated SIP became effective on April 21, 2015 upon shareholder approval. The Company may grant awards under the amended plan until April 20, 2025. The Amended and Restated SIP amended 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 increase in shares in the Amended and Restated SIP includes shares that had been granted previously under the 2011 Plan. As of December 31, 2017, there were 1,560,728 shares available for future issuance in the Amended and Restated SIP.

The Amended and Restated SIP provides for the granting of stock-based awards to key employees and non-employee directors of the Company and its subsidiaries in the form of: (i) stock options; (ii) restricted stock awards (“RSAs”), (iii) restricted stock units (“RSUs”), (iv) stock awards; (v) performance share units (“PSUs”); and performance cash awards. The Company issues new shares to satisfy stock-based awards. For option awards, the option price cannot be less than the fair market value of the stock on the grant date. Stock option awards have a maximum term of ten years from the date of grant. No stock options have been granted since February 2012. RSAs and PSUs typically have vesting schedules over three to four-year periods.

For the years ended December 31, 2017, 2016, and 2015, the Company recognized stock-based compensation expense (included in salaries and benefits expense) (dollars in thousands, except per share data) as follows:



	Year Ended December 31,
	2017		2016		2015
Stock-based compensation expense	$	4,648	$	3,270	$	1,388
Reduction of income tax expense	1,467		1,104		405
Per share compensation cost	$	0.06	$	0.05	$	0.02

Stock Options

The following table summarizes the stock option activity during the year ended December 31, 2017:



	Stock Options (shares)		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life	Aggregate Intrinsic Value
Outstanding as of December 31, 2016	188,260		$	14.94
Granted	—		—
Exercised	(63,476	)	16.35
Forfeited	—		—
Expired	(3,041	)	26.10
Outstanding as of December 31, 2017	121,743		13.93		1.65	$	2,708,076
Exercisable as of December 31, 2017	121,743		13.93		1.65	2,708,076

During the year ended December 31, 2017, there were 63,476 stock options exercised with a total intrinsic value (the amount by which the stock price exceeded the exercise price) and fair value of approximately $1.2 million and $2.2 million, respectively. Cash received from the exercise of stock options for the year ended December 31, 2017 was approximately $1.0 million, and the tax benefit realized from tax deductions associated with options exercised during the year was approximately $370,000.

The fair value of all stock options vested during 2017 was approximately $47,000 and the total intrinsic value of all stock options outstanding was $2.7 million as of December 31, 2017.

During the year ended December 31, 2016, there were 88,409 stock options exercised with a total intrinsic value (the amount by which the stock price exceeded the exercise price) and fair value of approximately $1.2 million and $2.6 million, respectively. Cash received from the exercise of stock options for the year ended December 31, 2016 was approximately $1.4 million, and the tax benefit realized from tax deductions associated with options exercised during the year was approximately $381,000.

The fair value of all stock options vested during 2016 was approximately $159,000 and the total intrinsic value of all stock options outstanding was $3.9 million as of December 31, 2016.

During the year ended December 31, 2015, there were 60,637 stock options exercised with a total intrinsic value (the amount by which the stock price exceeded the exercise price) and fair value of approximately $544,000 and $1.4 million, respectively. Cash received from the exercise of stock options for the year ended December 31, 2015 was approximately $886,000, and the tax benefit realized from tax deductions associated with options exercised during the year was approximately $178,000.

The fair value of all stock options vested during 2015 was approximately $316,000 and the total intrinsic value of all stock options outstanding was $2.8 million as of December 31, 2015.

Restricted Stock

The Amended and Restated SIP permits the granting of restricted stock awards. Generally, RSAs vest 50% on each of the third and fourth anniversaries from the date of the grant. The value of the restricted stock awards was 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 for RSAs, if any. 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 year ended December 31, 2017:



	Number of Shares of RSAs		Weighted Average Grant-Date Fair Value
Balance, December 31, 2016	371,438		$	23.70
Granted	125,738		35.89
Net settle for taxes	(47,187	)	37.80
Vested	(110,057	)	24.93
Forfeited	(13,196	)	26.55
Balance, December 31, 2017	326,736		27.68

Performance Stock

PSUs are granted to certain employees at no cost to the recipient and are subject to vesting based on achieving certain performance metrics; the grant of PSUs is subject to approval by the Company’s Compensation Committee at its sole discretion. PSUs may be paid in cash or shares of common stock or a combination thereof. Holders of PSUs have no right to vote the shares represented by the units. In 2017, the PSUs awarded were market based awards with the number of PSUs ultimately earned based on the Company’s total shareholder return (“TSR”) as measured over the performance period.



	Number of Shares of PSUs		Weighted Average Grant- Date Fair Value
Balance, December 31, 2016	145,757		$	21.05
Granted	37,249		39.31
Vested	—		—
Forfeited	(48,656	)	24.19
Balance, December 31, 2017	134,350		24.98

During years ended December 31, 2017, 2016 and 2015 PSUs were awarded with a market based component based on total shareholder return. The fair value of each PSU granted is estimated on the date of grant using the Monte Carlo simulation lattice model that uses the assumptions noted in the following table:



	2017		2016		2015
Dividend yield⁽¹⁾	2.15	%	3.36	%	3.12	%
Expected life in years⁽²⁾	2.85		2.85		2.70
Expected volatility⁽³⁾	23.35	%	22.16	%	21.50	%
Risk-free interest rate⁽⁴⁾	1.40	%	0.83	%	0.75	%

(1) Calculated as the ratio of the current dividend paid per the stock price on the date of grant.

(2) Represents the remaining performance period as of the grant date

(3) Based on the historical volatility for the period commensurate with the expected life of the PSUs.

(4) Based upon the zero-coupon U.S. Treasury rate commensurate with the expected life of the PSUs on the grant date.

The estimated unamortized compensation expense, net of estimated forfeitures, related to restricted stock and performance stock issued and outstanding as of December 31, 2017 that will be recognized in future periods is as follows (dollars in thousands):



	Restricted Stock		Performance Stock		Total
2018	$	3,539	$	907	$	4,446
2019	2,725		624		3,349
2020	1,156		41		1,197
2021	97		—		97
Total	$	7,517	$	1,572	$	9,089

At December 31, 2017, there was $9.1 million of total unrecognized compensation cost related to nonvested stock-based compensation arrangements granted under the Amended and Restated SIP. The cost is expected to be recognized through 2021.