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STOCK-BASED COMPENSATION PLANS

12 Months Ended

Dec. 31, 2023

STOCK-BASED COMPENSATION PLANS

STOCK-BASED COMPENSATION PLANS

NOTE K: STOCK-BASED COMPENSATION PLANS

The Company has a long-term incentive program for directors, officers and employees. Under this program, the Company initially authorized four million shares of Company common stock for the grant of incentive stock options, nonqualified stock options, restricted stock awards, and retroactive stock appreciation rights. The long-term incentive program was amended effective May 25, 2011, May 14, 2014 and May 17, 2017 to authorize an additional 900,000 shares, 1,000,000 shares and 1,000,000 shares, respectively, for the grant of incentive stock options, nonqualified stock options, restricted stock awards, and retroactive stock appreciation rights. Effective May 18, 2022, a new plan was adopted by the Company’s shareholders that authorized 600,000 shares of Company common stock for the same purpose. As of December 31, 2023, the Company has authorization to grant up to approximately 0.6 million additional shares of Company common stock for these instruments.

Nonqualified Stock Options

The Company recognized stock-based compensation expense related to non-qualified stock options of $3.2 million, $2.9 million and $2.6 million for the years ended December 31, 2023, 2022 and 2021, respectively. A related income tax benefit was recognized of $0.8 million, $0.7 million and $0.6 million for the 2023, 2022 and 2021 years, respectively.

The nonqualified (offset) stock options in its Director’s Stock Balance Plan vest and become exercisable immediately and expire one year after the date the director retires or two years in the event of death. The remaining options have a ten-year term, and vest and become exercisable on a grant-by-grant basis, ranging from immediate vesting to ratably over a five-year period.

Activity in this long-term incentive program is as follows:


		Stock Options
				Weighted-
				average Exercise
		Outstanding		Price of Shares
Outstanding at December 31, 2021		1,392,705		$	50.73
Granted		173,313			71.78
Exercised		(67,566)			41.61
Forfeited		(13,430)			67.88
Outstanding at December 31, 2022		1,485,022			53.45
Granted		252,974			54.06
Exercised		(71,559)			34.27
Forfeited		(24,583)			60.84
Outstanding at December 31, 2023		1,641,854			54.27
Exercisable at December 31, 2023		1,100,927		$	50.60

The following table summarizes the information about stock options outstanding under the Company’s stock option plan at December 31, 2023:


		Options outstanding							Options exercisable
				Weighted-			Weighted-				Weighted-
				average			average				average
				Exercise			Remaining				Exercise
Range of Exercise Price		Shares		Price			Life (years)		Shares		Price
$0.00 – $26.00		40,002		$	23.04		3.00		40,002		$	23.04
$26.01 – $36.00		127,342			35.36		1.21		127,342			35.36
$36.01 – $46.00		249,063			37.95		1.61		249,063			37.95
$46.01 – $56.00		620,331			53.68		6.90		305,167			53.86
$56.01 – $81.00		605,116			67.63		6.13		379,353			64.30
TOTAL		1,641,854		$	54.27		5.23		1,100,927		$	50.60

The weighted-average remaining contractual term of outstanding and exercisable stock options at December 31, 2023 is 5.23 years and 3.89 years, respectively. The aggregate intrinsic value of outstanding and exercisable stock options at December 31, 2023 are each $6.9 million.

Management estimated the fair value of options granted using the Black-Scholes option-pricing model. This model was originally developed to estimate the fair value of exchange-traded equity options, which (unlike employee stock options) have no vesting period or transferability restrictions. As a result, the Black-Scholes model is not necessarily a precise indicator of the value of an option, but it is commonly used for this purpose. The Black-Scholes model requires several assumptions, which management developed based on historical trends and current market observations. Expected volatilities are based on historical volatilities of the Company’s common stock. The Company uses historical data to estimate option exercise and post-vesting termination behavior. The expected term of options granted is based on historical data and represents the period of time that options granted are expected to be outstanding, which takes into account that the options are not transferable. The risk-free interest rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of the grant.


		2023			2022			2021
Weighted-average Fair Value of Options Granted		$	14.93		$	17.86		$	18.43
Assumptions:
Weighted-average expected life (in years)			6.50			6.50			6.50
Future dividend yield			2.48	%		2.41	%		2.48	%
Share price volatility			29.72	%		29.88	%		30.09	%
Weighted-average risk-free interest rate			3.74	%		2.16	%		1.28	%

Unrecognized stock-based compensation expense related to non-vested stock options totaled $6.3 million at December 31, 2023. The weighted-average period over which this unrecognized expense would be recognized is 3.1 years. The total fair value of stock options vested during 2023, 2022, and 2021 were $2.7 million, $2.7 million and $2.5 million, respectively.

During the 12 months ended December 31, 2023 and 2022, proceeds from stock option exercises totaled $2.6 million and $3.2 million, respectively, and the related tax benefits from exercise were approximately $0.3 million for each year. During the twelve months ended December 31, 2023 and 2022, approximately 0.07 million and 0.06 million shares, respectively, were issued in connection with stock option exercises each year. The total intrinsic value of options exercised during 2023, 2022 and 2021 were $1.7 million, $2.0 million and $10.3 million, respectively.

Restricted Stock Awards

Compensation expense is recognized over the vesting period of the awards based on the fair value of the Company’s stock at grant date. The Company recognized stock-based compensation expense related to restricted stock vesting recognized in the income statement for 2023, 2022 and 2021 was approximately $4.5 million, $3.8 million and $2.8 million, respectively.

The fair value of restricted stock awards is based on the end-of-day share price of the Company’s stock on the grant date. Restricted stock awards granted prior to 2022 vest ratably over a five-year period and restricted stock awards granted in 2022 and thereafter vest ratably over a three-year period. During the forfeiture period, shares that have not been forfeited have the right to vote and the right to receive dividends.

A summary of the status of the Company’s unvested restricted stock awards as of December 31, 2023, and changes during the twelve months ended December 31, 2023 and 2022, is presented below:


		Restricted		Weighted-average
		Shares		grant date fair value
Unvested at December 31, 2021		129,448		$	64.32
Awards		56,871			71.58
Forfeitures		(2,940)			67.44
Vestings		(49,859)			62.86
Unvested at December 31, 2022		133,520			67.89
Awards		70,338			54.03
Forfeitures		(2,648)			60.56
Vestings		(51,647)			65.55
Unvested at December 31, 2023		149,563		$	62.31

Unrecognized stock-based compensation expense related to unvested restricted stock totaled $5.9 million at December 31, 2023, which will be recognized as expense over the next three or five years according to the awards vesting schedule. The weighted-average period over which this unrecognized expense would be recognized is 1.7 years. The total fair value of restricted stock vested during 2023, 2022, and 2021 were $3.4 million, $3.1 million and $2.5 million, respectively.

Performance Awards

The long-term incentive program provides for the issuance of shares of performance award restricted stock to officers and key employees. There are two sets of performance criteria based on the individual award; (1) based on the Company’s cumulative three year Relative Total Shareholder Return (“TSR”) ranking compared to the constituents of the KBW Regional Bank Index, and continued employment weighted at 50%; and (2) three year Average Relative Return on Average Core Tangible Common Equity (“Core ROATCE”) Relative Total Performance Goal weighted at 50%. Compensation expense is recognized over the vesting period of the awards based on the fair value of the stock at issue date. Management estimated the fair value of the stock granted under performance criteria (1) using the Monte Carlo Simulation and stock granted under performance criteria (2) using the grant date fair value. Performance shares cliff vest based on performance results for a three year period. Compensation cost is estimated based on the probability that the performance conditions will be achieved. As of December 31, 2023, the compensation cost is estimated at 96% payout under the terms of the plan for the different performance sets. At each reporting period, the Company will reassess the likelihood of achieving the performance criteria and will adjust compensation expense as needed. The shares have voting rights. Upon vesting of the performance shares, any dividends declared during the vesting period will be paid based on the shares vested. Total shares issuable under the plan are 81,138 at December 31, 2023 with 52,588 shares issued in 2023 and 28,550 shares issued in 2022.


		Performance
		Restricted		Weighted-average
		Shares		grant date fair value
Unvested at December 31, 2021		47,820		$	29.71
Awards		35,815			34.93
Forfeitures		(51,000)			30.02
Vestings		(636)			35.89
Unvested at December 31, 2022		31,999			34.93
Awards		52,588			25.36
Forfeitures		(2,874)			34.93
Vestings		(575)			34.93
Unvested at December 31, 2023		81,138		$	27.15

Unrecognized stock-based compensation expense related to unvested performance restricted stock totaled $1.9 million at December 31, 2023, which will be recognized as expense over the next three years. The weighted-average period over which this unrecognized expense would be recognized is 1.8 years. The total fair value of restricted stock vested during 2023 was immaterial, and was $0.02 million and $0.01 million in 2022 and 2021, respectively.