Employee Benefit Plans | 12 Months Ended |
Sep. 30, 2014 |
Defined Benefit Plans and Other Postretirement Benefit Plans Disclosures [Abstract] | |
Compensation and Employee Benefit Plans [Text Block] | Note 13. Employee Benefit Plans |
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The Bank has a noncontributory defined benefit pension plan (the Pension Plan) for substantially all of the Bank’s employees who were employed on or before July 31, 2011. Employees hired after July 31, 2011 are not eligible to participate in the Pension Plan. Retirement benefits under this plan are generally based on the employee’s years of service and compensation during the five years of highest compensation in the ten years immediately preceding retirement. In connection with its proposed merger with TowneBank, the Bank has begun the process of freezing and terminating the pension plan effective December 31, 2014. |
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The Pension Plan assets are held in a trust fund by the plan trustee. The trust agreement under which assets of the Pension Plan are held is a part of the Virginia Bankers Association Master Defined Benefit Pension Plan (the Plan). The Plan’s administrative trustee is appointed by the board of directors of the Virginia Bankers Association Benefits Corporation. At September 30, 2014, Reliance Trust Company was investment manager and trustee for the Plan. Contributions are made to the Pension Plan, at management’s discretion, subject to meeting minimum funding requirements, up to the maximum amount allowed under the Employee Retirement Income Security Act of 1974 (ERISA), based upon the actuarially determined amount necessary for meeting plan obligations. Contributions are intended to provide not only for benefits attributed to service to date, but also for benefits expected to be earned by employees in the future. |
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The Company uses a September 30 measurement date for the Pension Plan. |
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Obligations and Funded Status |
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The following table summarizes the projected benefit obligation, fair value of plan assets, and funded status as of September 30, 2014 and 2013: |
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(Dollars in thousands) | | 2014 | | 2013 | | | | | | | | | | | | | | | | | | | |
Change in benefit obligation: | | | | | | | | | | | | | | | | | | | | | | | | | |
Projected benefit obligation at beginning of year | | $ | 15,153 | | $ | 15,740 | | | | | | | | | | | | | | | | | | | |
Service cost | | | 350 | | | 422 | | | | | | | | | | | | | | | | | | | |
Interest cost | | | 701 | | | 615 | | | | | | | | | | | | | | | | | | | |
Actuarial loss (gain) | | | 1,753 | | | -1,049 | | | | | | | | | | | | | | | | | | | |
Benefits paid | | | -579 | | | -575 | | | | | | | | | | | | | | | | | | | |
Curtailment gain | | | -1,547 | | | – | | | | | | | | | | | | | | | | | | | |
Projected benefit obligation at end of year | | $ | 15,831 | | $ | 15,153 | | | | | | | | | | | | | | | | | | | |
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(Dollars in thousands) | | 2014 | | 2013 | | | | | | | | | | | | | | | | | | | |
Change in plan assets: | | | | | | | | | | | | | | | | | | | | | | | | | |
Fair value of plan assets at beginning of year | | $ | 15,484 | | $ | 13,893 | | | | | | | | | | | | | | | | | | | |
Actual return on plan assets | | | 1,681 | | | 2,166 | | | | | | | | | | | | | | | | | | | |
Benefits paid | | | -579 | | | -575 | | | | | | | | | | | | | | | | | | | |
Fair value of plan assets at end of year | | $ | 16,586 | | $ | 15,484 | | | | | | | | | | | | | | | | | | | |
Funded status | | $ | 755 | | $ | 331 | | | | | | | | | | | | | | | | | | | |
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(Dollars in thousands) | | 2014 | | 2013 | | | | | | | | | | | | | | | | | | | |
Amounts recognized as prepaid expenses and other assets | | $ | 755 | | $ | 331 | | | | | | | | | | | | | | | | | | | |
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(Dollars in thousands) | | 2014 | | 2013 | | | | | | | | | | | | | | | | | | | |
Amounts recognized in accumulated other comprehensive income, net of income taxes | | | | | | | | | | | | | | | | | | | | | | | | | |
Net loss | | $ | 250 | | $ | 667 | | | | | | | | | | | | | | | | | | | |
Prior service cost | | | – | | | -152 | | | | | | | | | | | | | | | | | | | |
Deferred income taxes | | | -95 | | | -196 | | | | | | | | | | | | | | | | | | | |
Total recognized in accumulated other comprehensive income | | $ | 155 | | $ | 319 | | | | | | | | | | | | | | | | | | | |
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The plan had accumulated benefit obligations of $15.8 million and $13.8 million as of September 30, 2014 and 2013, respectively. |
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Components of Net Periodic Benefit Cost |
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Components of net periodic benefit (income) cost for the years ended September 30, 2014, 2013, and 2012 are as follows: |
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(Dollars in thousands) | | 2014 | | 2013 | | 2012 | | | | | | | | | | | | | | | | |
Service cost | | $ | 350 | | $ | 422 | | $ | 602 | | | | | | | | | | | | | | | | |
Interest cost | | | 701 | | | 615 | | | 664 | | | | | | | | | | | | | | | | |
Expected return on plan assets | | | -1,057 | | | -947 | | | -811 | | | | | | | | | | | | | | | | |
Amortization of prior service cost | | | -152 | | | -15 | | | – | | | | | | | | | | | | | | | | |
Recognized net actuarial loss | | | – | | | 135 | | | 230 | | | | | | | | | | | | | | | | |
Net periodic benefit (income) cost | | $ | -158 | | $ | 210 | | $ | 685 | | | | | | | | | | | | | | | | |
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The net periodic benefit (income) cost is included in personnel expense in the consolidated statements of earnings. |
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Other changes in plan assets and benefit obligations recognized in other comprehensive income for the years ended September 30, 2014, 2013 and 2012 are as follows: |
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(Dollars in thousands) | | 2014 | | 2013 | | 2012 | | | | | | | | | | | | | | | | |
Net (gain)/loss | | $ | -417 | | $ | -2,403 | | $ | -1,059 | | | | | | | | | | | | | | | | |
Prior service income | | | - | | | - | | | -168 | | | | | | | | | | | | | | | | |
Amortization of prior service cost | | | 152 | | | 15 | | | - | | | | | | | | | | | | | | | | |
Total recognized in other comprehensive income | | $ | -265 | | $ | -2,388 | | $ | -1,227 | | | | | | | | | | | | | | | | |
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Assumptions |
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Weighted average assumptions used to determine the benefit obligation as of September 30, 2014 and 2013 are as follows: |
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| | 2014 | | | 2013 | | | | | | | | | | | | | | | | | | |
Discount rate | | | 4 | % | | | 4.75 | % | | | | | | | | | | | | | | | | | |
Rate of compensation increase | | | – | -1 | | | 3 | | | | | | | | | | | | | | | | | | |
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| -1 | Rate of compensation increase is 0% due to the plan being frozen and terminated as of December 31, 2014. | | | | | | | | | | | | | | | | | | | | | | | |
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Weighted average assumptions used to determine the net periodic benefit cost for the years ended September 30, 2014, 2013, and 2012 are as follows: |
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| | 2014 | | | 2013 | | | 2012 | | | | | | | | | | | | | | |
Discount rate | | | 4.75 | % | | | 4 | % | | | 4.75 | % | | | | | | | | | | | | | |
Expected return on plan assets | | | 7 | | | | 7 | | | | 7 | | | | | | | | | | | | | | |
Rate of compensation increase | | | 3 | | | | 3 | | | | 4 | | | | | | | | | | | | | | |
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Plan assets, which at September 30, 2014 consisted of the Federated Government Obligations Money Market Fund, are valued at the current net asset value of the fund. The projected benefit obligation and the net periodic benefit cost are calculated by an independent actuary using assumptions provided by the Company. Assumptions used to determine the benefit obligation include the discount rate and the rate of compensation increase. The Company uses a discount rate that is based on the yield of a composite corporate bond index that includes “AA” rated bonds. |
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The rate of compensation increase is based on historical experience and management’s expectation of future compensation. |
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The expected rate of return on plan assets is estimated by management based on the composition of plan assets and anticipated rates of return for current market conditions and future expectations. The Company selects the expected long-term rate of return on assets in consultation with its investment advisors and actuary. This rate is intended to reflect the average rate of earnings expected to be earned on the funds invested or to be invested to provide plan benefits. Historical performance is reviewed, especially with respect to real rates of return, net of inflation, for the major asset classes held or anticipated to be held by the trust, and for the trust itself. Undue weight is not given to recent experience, which may not continue over the measurement period. Higher significance is placed on current forecasts of future long-term economic conditions. |
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Because assets are held in a qualified trust, anticipated returns are not reduced for taxes. Further, solely for this purpose, the plan is assumed to continue in force and not terminate during the period in which assets are invested. However, consideration is given to the potential impact of current and future investment policy, cash flow into and out of the trust, and expenses, both investment and non-investment, typically paid from plan assets, to the extent such expenses are not explicitly estimated within periodic cost. |
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Plan Assets |
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The fair values of the Company's pension plan assets at September 30, 2014 and 2013, by asset category, are as follows: |
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| | September 30, 2014 | | September 30, 2013 | |
(Dollars in thousands) | | Total | | Quoted | | Significant | | Significant | | Total | | Quoted | | Significant | | Significant | |
Market | Observable | Unobservable | Market | Observable | Unobservable |
Prices | Inputs | Inputs | Prices | Inputs | Inputs |
(Level 1) | (Level 2) | (Level 3) | (Level 1) | (Level 2) | (Level 3) |
Mutual funds – fixed income | | $ | – | | $ | – | | $ | – | | $ | – | | $ | 3,753 | | $ | 3,753 | | $ | – | | $ | – | |
Mutual funds – equity | | | | | | | | | | | | | | | | | | | | | | | | | |
Large-cap equity funds | | | – | | | – | | | – | | | – | | | 3,054 | | | 3,054 | | | – | | | – | |
Mid-cap equity funds | | | – | | | – | | | – | | | – | | | 2,004 | | | 2,004 | | | – | | | – | |
Small-cap equity funds | | | – | | | – | | | – | | | – | | | 841 | | | 841 | | | – | | | – | |
International equity funds | | | – | | | – | | | – | | | – | | | 2,829 | | | 2,829 | | | – | | | – | |
Diversified equity funds | | | – | | | – | | | – | | | – | | | 2,955 | | | 2,955 | | | – | | | – | |
Cash and cash equivalents | | | 16,586 | | | 16,586 | | | – | | | – | | | 48 | | | 48 | | | – | | | – | |
Total | | $ | 16,586 | | $ | 16,586 | | $ | – | | $ | – | | $ | 15,484 | | $ | 15,484 | | $ | – | | $ | – | |
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At September 30, 2013, fixed income mutual funds included investments in mutual funds focused on fixed income securities with both short-term and long-term investments. The funds were valued using the net asset value method in which an average of the market prices for the underlying investments is used to value the funds. At September 30, 2013, equity mutual funds included investments in mutual funds focused on equity securities with a diversified portfolio and include investments in large-cap, mid-cap, and small-cap funds; growth funds; international-focused funds; and value funds. The funds were valued using the net asset value method in which an average of the market prices for the underlying investments is used to value the funds. Cash and cash equivalents includes cash and short-term cash equivalent funds. The funds are valued at cost, which approximates fair value. |
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The Pension Plan’s weighted average asset allocations by asset category at September 30, 2014 and 2013 are as follows: |
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| 2014 | | | 2013 | | | | | | | | | | | | | | | | | | |
Asset category: | | | | | | | | | | | | | | | | | | | | | | | | | |
Mutual funds – fixed income | | | – | % | | | 24 | % | | | | | | | | | | | | | | | | | |
Mutual funds – equity | | | – | | | | 76 | | | | | | | | | | | | | | | | | | |
Mutual funds – money market | | | 100 | | | | – | | | | | | | | | | | | | | | | | | |
Total | | | 100 | % | | | 100 | % | | | | | | | | | | | | | | | | | |
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The trust fund was historically diversified with a targeted asset allocation of 25% fixed income and 75% equities. The investment manager selected investment fund managers with demonstrated experience and expertise and funds with demonstrated historical performance for the implementation of the Pension Plan’s investment strategy. The investment manager will maintain the Pension Plan’s funds in the Federated Government Obligations Money Market Fund pending the December 31, 2014 termination of the Pension Plan in anticipation of the proposed merger with TowneBank. |
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It is the responsibility of the administrative trustee to administer the investments of the trust within reasonable costs, being careful to avoid sacrificing quality. These costs include, but are not limited to, management and custodial fees, consulting fees, transaction costs, and other administrative costs chargeable to the trust. |
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Contributions for Fiscal Year 2015 |
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Contributions may be made to the Plan, at management’s discretion subject to meeting minimum funding requirements, up to the maximum tax-deductible amount allowable for the Plan. In connection with its proposed merger with TowneBank, the Bank has begun the process of freezing and terminating the plan. As such, the Company does not intend to make a contribution during fiscal 2015. |
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Estimated Future Benefit Payments |
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The following schedule summarizes benefit payments, which reflect expected future service, as appropriate, that are expected to be paid at September 30, 2014 (dollars in thousands): |
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Year ending September 30, | | | | | | | | | | | | | | | | | | | | | | | | | |
2015 | | $ | 16,586 | | | | | | | | | | | | | | | | | | | | | | |
2016 | | | – | | | | | | | | | | | | | | | | | | | | | | |
2017 | | | – | | | | | | | | | | | | | | | | | | | | | | |
2018 | | | – | | | | | | | | | | | | | | | | | | | | | | |
2019 | | | – | | | | | | | | | | | | | | | | | | | | | | |
2020 through 2024 | | | – | | | | | | | | | | | | | | | | | | | | | | |
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401(k) Defined Contribution Plan |
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The Bank has a 401(k) defined contribution plan, which covers substantially all of the employees of the Bank. Employees may contribute up to the statutory limit into the plan. The Bank matches 25% of the first 6% of the employee’s contribution. The plan also allows for a discretionary contribution to be made by the Bank. Employer matching contributions included in expense were $56,000, $52,000 and $48,000 for the years ended September 30, 2014, 2013, and 2012, respectively. |
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Employee Stock Ownership Plan |
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In connection with the mutual-to-stock conversion, the Bank established an employee stock ownership plan (“ESOP”) for the benefit of all of its eligible employees. Full-time employees of the Bank who have been credited with at least 1,000 hours of service during a 12-month period and who have attained age 21 are eligible to participate in the ESOP. It is anticipated that the Bank will make contributions to the ESOP in amounts necessary to amortize the ESOP loan payable to Franklin Financial over a period of 20 years unless the ESOP is terminated in connection with the proposed merger with TowneBank (see below). |
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Unallocated ESOP shares are not included in the calculation of earnings per share, and are shown as a reduction of stockholders’ equity. Dividends on unallocated ESOP shares, if paid, will be considered to be compensation expense. The Company will recognize compensation cost equal to the fair value of the ESOP shares during the periods in which they become committed-to-be-released. Share allocations are recorded on a monthly basis with fair value determined by calculating the average closing stock price for each day during the month. To the extent that the fair value of the Company’s ESOP shares differs from the cost of such shares, the differential will be recognized in stockholders’ equity. The Company will receive a tax deduction equal to the cost of the shares released. As the ESOP is internally leveraged, the loan receivable by Franklin Financial from the ESOP is not reported as an asset nor is the debt of the ESOP shown as a liability in the consolidated financial statements. |
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Compensation cost related to the ESOP for the years ended September 30, 2014, 2013 and 2012 was $1.1 million, $1.0 million and $878,000, respectively, with a related tax benefit of $217,000, $217,000 and $243,000, respectively. The fair value of the unallocated ESOP shares, using the closing quoted market price per share of the Company’s stock, was $17.3 million and $18.7 million at September 30, 2014 and 2013, respectively. A summary of the ESOP share allocation as of September 30, 2014 and 2013 is as follows: |
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| 2014 | | 2013 | | | | | | | | | | | | | | | | | | | |
Allocated shares – beginning of year | | | 155,775 | | | 100,041 | | | | | | | | | | | | | | | | | | | |
Shares allocated during the year | | | 57,211 | | | 57,171 | | | | | | | | | | | | | | | | | | | |
Shares distributed during the year | | | -3,070 | | | -1,437 | | | | | | | | | | | | | | | | | | | |
Allocated shares – end of year | | | 209,916 | | | 155,775 | | | | | | | | | | | | | | | | | | | |
Unallocated shares | | | 929,804 | | | 987,015 | | | | | | | | | | | | | | | | | | | |
Total ESOP shares | | | 1,139,720 | | | 1,142,790 | | | | | | | | | | | | | | | | | | | |
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In connection with the proposed merger with TowneBank, the ESOP will be terminated prior to the effective date of the merger and all plan participants will become fully vested. Prior to the effective date of the merger, the ESOP will pay off the outstanding loan by delivering shares of the Company with a value equal to the balance of the loan. The remaining unallocated ESOP shares will then be allocated to eligible participants in proportion to their account balances. At the effective date of the merger, all ESOP shares will then be converted into 1.40 shares of TowneBank common stock. |
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Equity Incentive Plan |
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On February 21, 2012, the Company adopted the Franklin Financial Corporation 2012 Equity Incentive Plan (the “2012 Equity Incentive Plan”), which provides for awards of restricted stock and stock options to key officers and outside directors. The cost of the 2012 Equity Incentive Plan is based on the fair value of restricted stock and stock option awards on their grant date. The maximum number of shares that may be awarded under the plan is 2,002,398, including 1,430,284 for option exercises and 572,114 restricted stock shares. |
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The vesting of the restricted stock awards is contingent upon service, performance, and market conditions. Performance conditions consist of the achievement of certain benchmarks regarding tangible book value per share, while market conditions consist of provisions that allow for partial vesting of shares in the event that certain share price targets are met even if performance criteria are not fully met. The fair value of restricted stock is determined based upon management’s assumptions regarding the achievement of performance and market conditions stipulated for each award. For awards with performance conditions, fair value is based upon the price of the Company’s stock on the grant date. For awards with both performance and market conditions, fair value is based on a Monte Carlo analysis incorporating the closing price of the Company’s stock on the grant date along with assumptions related to the Company’s stock price given the achievement of certain performance criteria. Restricted stock awards may not be disposed of or transferred during the vesting period but carry with them the right to receive dividends. The cost of restricted stock awards will be recognized using the graded-vesting method over the five-year vesting period during which participants are required to provide services in exchange for the awards. |
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The vesting of stock options is contingent only upon meeting service conditions. The fair value of stock options is estimated using a Black-Scholes option pricing model using assumptions for dividend yield, stock price volatility, risk-free interest rate, and option terms. These assumptions are based on judgments regarding future events, are subjective in nature, and cannot be determined with precision. Since stock option awards contain only service conditions, management has elected to recognize the cost of stock option awards on a straight-line basis over the five-year vesting period during which participants are required to provide services in exchange for the awards. |
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Shares of common stock issued under the 2012 Equity Incentive Plan may be authorized unissued shares or, in the case of restricted stock awards, may be shares repurchased on the open market. As of September 30, 2014, the Company, through an independent trustee, had repurchased all 572,114 shares on the open market for $9.2 million, or an average cost of $16.02 per share. |
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The table below presents stock option activity for the years ended September 30, 2014 and 2013: |
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| | | Weighted- | | Remaining | | Aggregate | | | | | | | | | | | | | |
| | | average | | contractual life | | intrinsic | | | | | | | | | | | | | |
(Dollars in thousands, except per share amounts) | | Options | | exercise price | | (years) | | value | | | | | | | | | | | | | |
Options outstanding at September 30, 2012 | | | 1,115,000 | | $ | 13.42 | | | 9.5 | | $ | 4,059 | | | | | | | | | | | | | |
Granted | | | – | | | – | | | | | | | | | | | | | | | | | | | |
Exercised | | | -7,400 | | | 13.42 | | | | | | | | | | | | | | | | | | | |
Forfeited | | | – | | | – | | | | | | | | | | | | | | | | | | | |
Expired | | | – | | | – | | | | | | | | | | | | | | | | | | | |
Options outstanding at September 30, 2013 | | | 1,107,600 | | | 13.42 | | | 8.5 | | $ | 6,136 | | | | | | | | | | | | | |
Granted | | | 315,200 | | | 18.4 | | | | | | | | | | | | | | | | | | | |
Exercised | | | -9,400 | | | 13.42 | | | | | | | | | | | | | | | | | | | |
Forfeited | | | – | | | – | | | | | | | | | | | | | | | | | | | |
Expired | | | – | | | – | | | | | | | | | | | | | | | | | | | |
Options outstanding at September 30, 2014 | | | 1,413,400 | | $ | 14.53 | | | 7.61 | | $ | 5,766 | | | | | | | | | | | | | |
Options exercisable at September 30, 2014 | | | 460,200 | | $ | 13.52 | | | 6.81 | | $ | 2,345 | | | | | | | | | | | | | |
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Expected volatility – Based on the historical volatility of the Company’s stock. |
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Risk-free interest rate – Based on the U.S. Treasury yield curve and the expected life of the options at the time of grant. |
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Expected dividends – The Company has not declared a dividend, other than a special dividend paid during fiscal 2013, and therefore no dividends are assumed. |
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Expected life – Based on a weighted-average of the five-year vesting period and the 10-year contractual term of the stock option plan. |
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Grant price for the stock options – Based on the closing price of the Company’s stock on the grant date. |
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The fair value of the Company’s stock option grants in 2012 was determined using the Black-Scholes option pricing formula, which resulted in a fair value of $3.76 per option. The following assumptions were used in the formula: |
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Expected volatility | | | 24.39 | % | | | | | | | | | | | | | | | | | | | | | |
Risk-free interest rate | | | 1.43 | % | | | | | | | | | | | | | | | | | | | | | |
Expected dividends | | | 0 | % | | | | | | | | | | | | | | | | | | | | | |
Expected life (in years) | | | 6.5 | | | | | | | | | | | | | | | | | | | | | | |
Grant price for the stock options | | $ | 13.42 | | | | | | | | | | | | | | | | | | | | | | |
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During the year ended September 30, 2014, the Company granted 315,200 stock options to directors and officers under the 2012 Equity Incentive Plan. The stock options are contingent upon meeting service conditions and vest ratably over five years. The fair value of these stock option grants was determined using the Black-Scholes option pricing formula, which resulted in a fair value of $4.98 per option. The following assumptions were used in the formula: |
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Expected volatility | | | 22.02 | % | | | | | | | | | | | | | | | | | | | | | |
Risk-free interest rate | | | 1.89 | % | | | | | | | | | | | | | | | | | | | | | |
Expected dividends | | | 0 | % | | | | | | | | | | | | | | | | | | | | | |
Expected life (in years) | | | 6.5 | | | | | | | | | | | | | | | | | | | | | | |
Grant price for the stock options | | $ | 18.4 | | | | | | | | | | | | | | | | | | | | | | |
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At September 30, 2014, the Company had $3.2 million of unrecognized compensation expense related to 1,382,104 stock options vested or expected to vest. The period over which compensation cost related to non-vested awards is expected to be recognized was 3.07 years at September 30, 2014. As of September 30, 2014, 460,200 options were vested and outstanding. The table below presents information about stock options vested or expected to vest over the remaining vesting period at September 30, 2014: |
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(Dollars in thousands, except per share amounts) | | | | | | | | | | | | | | | | | | | | | | | | |
Options expected to vest at period end | | | 1,382,104 | | | | | | | | | | | | | | | | | | | | | | |
Weighted-average exercise price | | $ | 14.51 | | | | | | | | | | | | | | | | | | | | | | |
Remaining contractual life (years) | | | 7.59 | | | | | | | | | | | | | | | | | | | | | | |
Aggregate intrinsic value | | $ | 5,664 | | | | | | | | | | | | | | | | | | | | | | |
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The table below presents restricted stock award activity for the years ended September 30, 2014 and 2013: |
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| | | Weighted- | | | | | | | | | | | | | | | | | | | |
| | Restricted | | average grant | | | | | | | | | | | | | | | | | | | |
| | stock awards | | date fair value | | | | | | | | | | | | | | | | | | | |
Non-vested at September 30, 2012 | | | 449,500 | | $ | 13.42 | | | | | | | | | | | | | | | | | | | |
Granted | | | – | | | – | | | | | | | | | | | | | | | | | | | |
Vested | | | -89,900 | | | 13.42 | | | | | | | | | | | | | | | | | | | |
Forfeited | | | – | | | – | | | | | | | | | | | | | | | | | | | |
Non-vested at September 30, 2013 | | | 359,600 | | | 13.42 | | | | | | | | | | | | | | | | | | | |
Granted | | | 122,500 | | | 18.4 | | | | | | | | | | | | | | | | | | | |
Vested | | | -102,300 | | | 13.59 | | | | | | | | | | | | | | | | | | | |
Forfeited | | | – | | | – | | | | | | | | | | | | | | | | | | | |
Non-vested at September 30, 2014 | | | 379,800 | | $ | 14.98 | | | | | | | | | | | | | | | | | | | |
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During the year ended September 30, 2014, the Company granted 122,500 restricted stock awards to directors and officers under the 2012 Equity Incentive Plan. The restricted stock awards are contingent upon meeting service conditions and vest ratably over five years. Also during the year ended September 30, 2014, the board of directors of the Company deemed the performance conditions for the 2014 and 2015 vesting periods for the restricted stock awards granted in 2012 to have been met with respect to officers and made the vesting of those awards subject only to meeting service conditions. Performance conditions for the 2016 vesting period remain in place. |
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At September 30, 2014, unrecognized compensation expense adjusted for expected forfeitures was $3.0 million related to 366,961 shares of restricted stock expected to vest over the remaining vesting period. The weighted-average period over which compensation cost related to non-vested awards is expected to be recognized was 3.35 years at September 30, 2014. |
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The estimated unamortized compensation expense, net of estimated forfeitures, related to nonvested stock options and restricted stock issued and outstanding as of September 30, 2014 that will be recognized in future periods is as follows: |
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| | | | Restricted | | | | | | | | | | | | | | | | | | |
(Dollars in thousands) | | Stock Options | | Stock | | Total | | | | | | | | | | | | | | | | |
For the year ending September 30, 2015 | | $ | 1,088 | | $ | 1,138 | | $ | 2,226 | | | | | | | | | | | | | | | | |
For the year ending September 30, 2016 | | | 1,089 | | | 886 | | | 1,975 | | | | | | | | | | | | | | | | |
For the year ending September 30, 2017 | | | 683 | | | 529 | | | 1,212 | | | | | | | | | | | | | | | | |
For the year ending September 30, 2018 | | | 293 | | | 420 | | | 713 | | | | | | | | | | | | | | | | |
For the year ending September 30, 2019 | | | 2 | | | 4 | | | 6 | | | | | | | | | | | | | | | | |
Total | | $ | 3,155 | | $ | 2,977 | | $ | 6,132 | | | | | | | | | | | | | | | | |
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Share-based compensation related to stock options and restricted stock recognized for the years ended September 30, 2014, 2013 and 2012 was $2.9 million, $3.1 million and $1.6 million, respectively, and the related income tax benefit was $1.1 million, $1.2 million and $622,000, respectively. |
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In connection with the proposed merger with TowneBank, each stock option that is outstanding immediately prior to the effective date of the merger, whether vested or unvested, will be converted into the right to receive cash from TowneBank in an amount equal to the product of (i) the average of the closing price per share of TowneBank common stock for the 10 consecutive trading days ending on and including the fifth trading day prior to the closing date of the merger multiplied by the exchange ratio minus the per share exercise price of such option and (ii) the number of shares of the Company’s common stock subject to such option. In the event that the product obtained by such calculation is zero or a negative number, then such option will be cancelled for no consideration. Each restricted stock award that is outstanding immediately before the effective date of the merger will vest in full and the restrictions thereon will lapse in accordance with the agreement relating to such award, and, as of the effective date of the merger, each share of the Company’s common stock that was formerly a restricted stock award will be converted into 1.40 shares of TowneBank common stock. |
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Deferred Compensation Plans |
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On April 17, 2001, February 21, 2006, February 19, 2008 and September 16, 2009, the board of directors of the Bank approved, respectively, the 2001 Deferred Compensation Plan for Directors and Senior Officers of Franklin Federal Savings Bank, the 2006 Deferred Compensation Plan for Directors and Senior Officers of Franklin Federal Savings Bank, the 2008 Deferred Compensation Plan for Directors and Senior Officers of Franklin Federal Savings Bank and the 2009 Deferred Compensation Plan for Directors and Senior Officers of Franklin Federal Savings Bank (the Deferred Compensation Plans), which became effective on April 1, 2001, October 1, 2005, October 1, 2007 and October 1, 2009, respectively. In connection with the conversion completed on April 27, 2011, the Deferred Compensation Plans were frozen and participants vesting was accelerated to September 30, 2011. Participants were given the opportunity to transfer their account balances to a new stock-based deferral plan (see below) and invest in Franklin Financial stock. Account balances not transferred earn interest at the Bank’s interest rate on seven-year certificates of deposit. Prior to the conversion, the Deferred Compensation Plans provided an unfunded deferred compensation arrangement that was modeled after the compensation incentives for directors and senior officers of converted publicly traded stock thrift corporations regulated by the Office of Thrift Supervision. Each participant’s account was credited with an initial earned award that increased or decreased annually based on the financial performance of the Bank. Under the terms of the Deferred Compensation Plans, the awards vested over four and one-half to five years and become 100% vested immediately upon a participant’s death, disability, or retirement at normal retirement age or the occurrence of specified corporate events. Accrued benefits under the Deferred Compensation Plans were $658,000 and $641,000 at September 30, 2014 and 2013, respectively, and are included in accrued expenses and other liabilities in the accompanying consolidated balance sheets. Deferred compensation expense was $17,000 for 2014, $11,000 for 2013, and $14,000 for 2012 and is included in personnel expense in the accompanying consolidated income statements. The Deferred Compensation Plans were terminated on December 18, 2013 along with the stock-based deferral plan, as discussed below, and the accrued benefits will be distributed to participants on December 30, 2014. |
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Stock-Based Deferral Plan |
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In connection with the mutual-to-stock conversion completed on April 27, 2011, the Company adopted a stock-based deferral plan whereby certain officers and directors could use funds from previously existing nonqualified deferred compensation plans to invest in stock of the Company. The Company established a trust to hold shares purchased through the stock-based deferral plan. The stock-based deferral plan was terminated on December 18, 2013 and will be paid out on December 22, 2014. The trust, which qualifies as a rabbi trust, will be terminated upon distribution of shares held by the trust. Until then, shares held by the trust are accounted for in a manner similar to treasury stock, and the deferred compensation balance is recorded as a component of additional paid-in capital on the Company’s balance sheet in accordance with GAAP. |
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