11.STOCK-BASED COMPENSATION

 

The Company’s stock incentive 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.  A stock option’s maximum term is ten years from the date of grant and the option price cannot be less than the fair market value of the stock on the grant date.  No stock options have been granted since February 2012.  Restricted stock and other stock-based awards typically vest in varying annual installments over a three- to five-year vesting schedule. 

 

On January 29, 2015, the Company’s Board of Directors adopted, and shareholders approved, the Union Bankshares Corporation Stock and Incentive Plan (the “Amended and Restated SIP”), which amends and restates the former plan (the “2011 Plan”).  The Amended and Restated SIP became effective on April 21, 2015 and the Company may grant awards under the amended plan until April 20, 2025. 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 increase in shares in the Amended and Restated SIP includes shares that had been granted previously under the 2011 Plan.  As of June 30, 2015, there were 1,960,531 shares available in the Amended and Restated SIP.

 

For the three months ended June 30, 2015 and 2014, the Company recognized stock-based compensation expense (included in salaries and benefits expense) of approximately $13,000 and $180,000 ($27,000 and $144,000 net of tax), respectively.  For the six months ended June 30, 2015 and 2014, the Company recognized stock-based compensation expense of approximately $403,000 and $554,000 ($308,000 and $414,000 net of tax), respectively.  Stock-based compensation expense represents approximately $0.01 per common share for both the six months ended June 30, 2015 and 2014. 

 

Stock Options

 

The following table summarizes the stock option activity for the six months ended June 30, 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 June 30, 2015:

Restricted Stock

 

The Amended and Restated SIP permits the granting of restricted stock awards.  This equity component of compensation can be in the form of restricted stock awards or restricted stock units with time-based vesting.  Performance share units can also be granted with vesting based on achieving certain performance metrics or other market-based conditions such as total shareholder return relative to a peer group.  Generally, restricted stock awards vest 50% on each of the third and fourth anniversaries from the date of the grant; performance and market-based awards typically vest on the third anniversary from the date of grant subject to meeting the specified performance criteria.  All grants of restricted stock are subject to approval by the Company’s Compensation Committee at its sole discretion.  The value of a restricted stock award is calculated by multiplying the fair market value of the Company’s common stock on the grant date by the number of shares awarded.  Market-based awards are valued at the grant date using the Monte Carlo simulation method.  Recipients of time-based restricted stock awards have the right to vote their non-vested shares and to receive, if declared and paid by the Company, any cash or stock dividends.  Recipients of performance share units do not have the right to vote their non-vested units, and do not receive cash or stock dividends.  Non-vested shares of restricted stock are included in the computation of basic earnings per share. The following table summarizes the restricted stock activity for the six months ended June 30, 2015:

 

 

The estimated unamortized compensation expense, net of estimated forfeitures, related to nonvested stock and stock options issued and outstanding as of June 30, 2015 that will be recognized in future periods is as follows (dollars in thousands):