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Note 6 - Share-based Payments

12 Months Ended

Dec. 31, 2019

Share-based Payment Arrangement [Text Block]

6. Share-Based Payments

Purchase Plan

The Purchase Plan allows eligible employees to purchase the Company’s common shares through payroll withholding at a discount of up to 15% off the market price at the end of each six-month purchase period. For purchase periods between January 1, 2017 and June 30, 2019, the purchase price was 100% of the market price at the end of each six-month purchase period. For purchase periods beginning after June 30, 2019, the purchase price is 85% of the market price at the end of each six-month purchase period. Under ASC Topic 718, Compensation—Stock Compensation (ASC 718), the Company is required to record compensation expense related to the 15% discount. The 15% discount resulted in compensation expense of $103,000 for the six-month period ended December 31, 2019.

Restricted Stock Granted to Directors

Under the 1999 Incentive Plan and the 2014 Incentive Plan, restricted shares of the Company’s common stock were granted to members of the Company’s board of directors as a form of compensation. All remaining restricted shares issued under the 1999 Incentive Plan vested on April 8, 2017. Under ASC 718 accounting requirements, compensation expense related to restricted shares is based on the fair value of the restricted shares on their grant dates. On April 8, 2019, 15,700 shares of restricted stock were granted to the Company’s nonemployee directors. The grant-date fair value of each share of restricted stock granted on April 8, 2019 was $49.73 per share, the average of the high and low market price on the date of grant. The restricted shares granted to directors in 2019 vest 33.3% per year on April 8 of each year in the period 2020 through 2022 and are eligible for full dividend and voting rights. Restricted shares not vested and dividends on those restricted shares are subject to forfeiture under the terms of the restricted stock award agreement.

Presented below is a summary of the status of directors’ restricted stock awards for the years ended December 31:

Directors’ Restricted Stock Awards	2019				2018				2017
	Shares		Weighted Average Grant-Date Fair Value		Shares		Weighted Average Grant-Date Fair Value		Shares		Weighted Average Grant-Date Fair Value
Nonvested, Beginning of Year		43,225	$	37.53		46,800	$	32.65		46,334	$	29.71
Granted		15,700		49.73		18,200		43.40		17,600		37.75
Vested		18,320		36.02		21,775		31.94		17,134		29.93
Forfeited		-				-				-
Nonvested, End of Year		40,605		42.93		43,225		37.53		46,800		32.65
Compensation Expense Recognized			$	776,000			$	661,000			$	658,000
Fair Value of Shares Vested in Year			$	660,000			$	696,000			$	513,000

Restricted Stock Granted to Employees

Under the 1999 Incentive Plan and 2014 Incentive Plan, restricted shares of the Company’s common stock were granted to employees as a form of compensation. All remaining restricted shares issued under the 1999 Incentive Plan vested on April 8, 2017. Under ASC 718 accounting requirements, compensation expense related to restricted shares is based on the fair value of the restricted shares on their grant dates. No shares of restricted stock have been granted to employees since 2014.

Presented below is a summary of the status of employees’ restricted stock awards for the years ended December 31:

Employees’ Restricted Stock Awards	2019				2018				2017
	Shares		Weighted Average Grant-Date Fair Value		Shares		Weighted Average Grant-Date Fair Value		Shares		Weighted Average Grant-Date Fair Value
Nonvested, Beginning of Year		-		-		2,895	$	29.41		7,180	$	29.72
Granted		-				-				-
Vested		-		-		2,895		29.41		4,285		29.94
Forfeited		-				-				-
Nonvested, End of Year		-		-		-		-		2,895		29.41
Compensation Expense Recognized			$	-			$	16,000			$	70,000
Fair Value of Awards Vested			$	-			$	85,000			$	128,000

Restricted Stock Units Granted to Executive Officers and Key Employees

On February 13, 2019, 15,600 restricted stock units under the 2014 Incentive Plan were granted to the Company’s executive officers. The grant-date fair value of each restricted stock unit was $49.6225 per share, the average of the high and low market price on the date of grant. On December 17, 2019, 600 restricted stock units under the 2014 Incentive Plan were granted to a key employee of the Company. The grant-date fair value of each restricted stock unit was $52.165 per share, the average of the high and low market price on the date of grant. The restricted stock units granted in 2019 vest 25% per year on February 6 of each year in the period 2020 through 2023. The restricted stock units granted to executive officers and key employees are eligible to receive dividend equivalent payments on all unvested awards over the awards’ respective vesting periods, subject to forfeiture under the terms of the restricted stock unit award agreements. The vesting of restricted stock units is accelerated in the event of a change in control, disability, death or retirement, subject to proration on retirement in certain cases.

Presented below is a summary of the status of dividend equivalent restricted stock unit awards granted to executive officers and key employees for the years ended December 31:

Dividend Equivalent Restricted Stock Unit Awards

2019

2018

2017

Shares

Weighted

Average

Grant-Date

Fair Value

Shares

Weighted

Average

Grant-Date

Fair Value

Shares

Weighted

Average

Grant-Date

Fair Value

Nonvested, Beginning of Year
45,300 $ 35.70 47,750 $ 32.71 41,825 $ 30.23

Granted
16,200 49.72 15,200 41.325 15,900 37.65

Vested
15,850 34.46 17,650 32.462 9,975 30.16

Forfeited
- - -

Nonvested, End of Year
45,650 41.10 45,300 35.70 47,750 32.71

Compensation Expense Recognized $ 1,055,000 $ 769,000 $ 576,000

Fair Value of Awards Vested $ 546,000 $ 573,000 $ 301,000

Restricted Stock Units Granted to Employees

In 2019, 13,270 restricted stock unit awards under the 2014 Incentive Plan were granted to certain employees of the Company. The grant-date fair value of each restricted stock unit was $44.45 per share based on the average of the high and low market price of the Company’s common stock on the date of grant, discounted for the value of the dividend exclusion over the four-year vesting period. The restricted stock units granted in 2019 vest 100% on April 8, 2023. The restricted stock units granted to employees of the Company are not eligible to receive dividend equivalent payments on unvested awards. Under the terms of the restricted stock unit award agreements, all outstanding (unvested) restricted stock units held by a retiring grantee vest immediately on normal retirement.

Presented below is a summary of the status of employees’ restricted stock unit awards for the years ended December 31:

Employees’ Restricted Stock Unit Awards

2019

2018

2017

Restricted

Stock

Units

Weighted

Average

Grant-Date

Fair Value

Restricted

Stock

Units

Weighted

Average

Grant-Date

Fair Value

Restricted

Stock

Units

Weighted

Average

Grant-Date

Fair Value

Nonvested, Beginning of Year
49,470 $ 31.03 46,440 $ 27.07 47,370 $ 25.19

Granted
13,270 44.45 14,780 38.99 10,995 33.28

Vested
13,250 27.62 8,925 25.23 11,550 25.30

Forfeited
1,900 34.57 2,825 25.86 375 26.92

Nonvested, End of Year
47,590 35.58 49,470 31.03 46,440 27.07

Compensation Expense Recognized $ 427,000 $ 351,000 $ 331,000

Fair Value of Awards Vested $ 366,000 $ 225,000 $ 292,000

Stock Performance Awards Granted to Executive Officers

Agreements for stock performance awards have been granted under the 2014 Incentive Plan for the Company’s executive officers. Under these agreements, the officers could be awarded shares of the Company’s common stock based on the Company’s total shareholder return relative to that of its peer group of companies in the Edison Electric Institute (EEI) Index over a three-year period beginning on January 1 of the year the awards are granted. The awards also include a performance incentive based on the Company’s average 3-year adjusted ROE relative to a targeted average 3-year adjusted ROE. The number of shares earned, if any, will be awarded and issued at the end of each three-year performance measurement period. The participants have no voting or dividend rights under these award agreements until common shares, if any, are issued at the end of the performance measurement period.

On February 13, 2019 performance share awards were granted to the Company’s executive officers under the 2014 Incentive Plan for the 2019-2021 performance measurement period. Under the 2019 performance share awards the aggregate award for performance at target is 55,600 shares. For target performance the participants would earn an aggregate of 27,800 common shares for achieving the target set for the Company’s 3-year average adjusted ROE. The participants would also earn an aggregate of 27,800 common shares based on the Company’s total shareholder return relative to the total shareholder return of the companies that comprise the EEI Index over the performance measurement period of January 1, 2019 through December 31, 2021, with the beginning and ending share values based on the average closing price of a share of the Company’s common stock for the 20 trading days immediately following January 1, 2019 and the average closing price for the 20 trading days immediately preceding January 1, 2022. Actual payment may range from zero to 150% of the target amount, or up to 83,400 common shares.

There are no voting or dividend rights related to these awards until the shares, if any, are issued at the end of the performance measurement period. The amount of payment in the event of retirement, resignation for good reason or involuntary termination without cause is to be made at the end of the performance period based on actual performance, subject to proration in certain cases, except that the payment of performance awards granted to an officer who is party to an Executive Employment Agreement with the Company is to be made at target at the date of any such event. The vesting of these awards is accelerated and paid at target on the event of a change in control. The terms of these awards are such that the entire award will be classified and accounted for as equity, as required under ASC 718, and will be measured over the performance period based on the grant-date fair value of the award. The grant-date fair value of each performance share award was determined using a Monte Carlo fair valuation simulation model.

The table below provides a summary of stock performance awards granted and amounts expensed related to the stock performance awards:

Performance

Period

Maximum

Shares Subject

To Award

Target

Shares

Expense Recognized

in the Year Ended December 31,

Earned

Shares

2019

2018

2017

2019-2021 83,400 55,600 $ 2,168,000

2018-2020 81,000 54,000 897,000 $ 1,121,000

2017-2019 89,250 59,500 524,000 729,000 $ 854,000 69,997

2016-2018 122,250 81,500 8,000 772,000 580,000 113,298

2015-2017 126,450 84,300 - 23,000 573,000 114,648

Total
$ 3,597,000 $ 2,645,000 $ 2,007,000 297,943

Stock-based payment expense recognized in 2019, 2018 and 2017 for the 2019-2021, 2018-2020 and 2017-2019 performance awards reflects the accelerated recognition of expense for outstanding and unvested awards of executives who are eligible for retirement and whose awards vest on normal retirement, as defined in the performance award agreements, prior to the vesting dates of the awards.

The earned shares shown in the table above for the 2016-2018 and 2017-2019 performance periods include vested shares issued in 2018 to a participant who retired on December 31, 2017 and had reached age 62 prior to retirement.

The earned shares shown in the table above for the 2017-2019 performance period also include shares received in 2020 by participants in the plan based on the Company achieving a total shareholder return ranking of 19 out of 39 companies in the EEI Index and an average 3-year adjusted ROE in excess of the targeted average 3-year adjusted ROE of 9.5% resulting in a payout at 120.19% of target.

The earned shares shown in the table above for the 2016-2018 performance period also include shares received in 2019 by participants in the plan based on the Company achieving a total shareholder return ranking of 1 out of 41 companies in the EEI Index and an average 3-year adjusted ROE in excess of the targeted average 3-year adjusted ROE of 10.00% resulting in a payout at 145.17% of target.

The earned shares shown in the table above for the 2015-2017 performance period include shares received in 2018 by participants in the plan based on the Company achieving a total shareholder return ranking of 2 out of 42 companies in the EEI Index and an average 3-year adjusted ROE in excess of the targeted average 3-year adjusted ROE of 10.00% resulting in a payout at 136.00% of target.

As of December 31, 2019, the total remaining unrecognized amount of compensation expense related to stock-based compensation for all of the Company’s stock-based payment programs was approximately $3.5 million (before income taxes), which will be amortized over a weighted average period of 1.9 years.