NOTE 21 – Stock-Based Compensation

Compensation cost is recognized for stock options and restricted stock awards issued to employees and non-employee directors. Compensation cost is measured as the fair value of these awards on their date of grant. A Black-Scholes model is utilized to estimate the fair value of stock options, while the market price of the Company’s common stock at the date of grant is used as the fair value of restricted stock awards. Compensation cost is recognized over the required service period, generally defined as the vesting period for stock option and restricted stock awards.

The Company’s stock incentive programs are long-term retention programs intended to attract, retain, and provide incentives for key employees and non-employee directors in the form of incentive and non-qualified stock options and restricted stock.

Stock-based compensation expense was recorded as follows:


	For the years ended December 31,
(dollars in thousands)	2019		2018	2017
Stock option expense	$	1,270	1,183	959
Restricted stock grant expense		428	319	299
Total stock-based compensation expense	$	1,698	1,502	1,258

Stock Options
On May 18, 2010, the Company adopted the 2010 Incentive Plan, making available for issuance 366,025 stock options (adjusted for the 10% stock dividends in 2013, 2012, and 2011). The options may be exercised at an exercise price per share based on the fair market value and determined on the date of grant and expire 10 years from the grant date. On May 20, 2014, the Company amended the 2010 Incentive Plan to add an additional 200,000 shares of common stock to be issuable as stock options, for a total of 566,025 shares. As of December 31, 2019, there were 9,275 options available for grant under the 2010 Incentive Plan.

On May 17, 2016, the Company adopted the 2016 Equity Incentive Plan, making available for issuance 400,000 stock options. The options may be exercised at an exercise price per share based on the fair market value and determined on the date of grant and expire 10 years from the grant date. As of December 31, 2019, there were 174,715 options available for grant under the 2016 Equity Incentive Plan.

A summary of the status of the stock option plan and changes for the period is presented below:


	For the years ended December 31,
					2019					2018					2017
					Weighted					Weighted					Weighted
			Weighted		Average			Weighted		Average			Weighted		Average
			average		Remaining			average		Remaining			average		Remaining
			exercise		Contractual			exercise		Contractual			exercise		Contractual
	Shares		price		Life	Shares		price		Life	Shares		price		Life
Outstanding at beginning of year	648,311		$	20.74		662,841		$	15.70		642,203		$	11.77
Granted	101,350			32.81		94,700			43.13		110,950			35.34
Exercised	(191,497	)		9.24		(105,630	)		8.51		(74,437	)		9.48
Forfeited or expired	(16,750	)		34.01		(3,600	)		40.03		(15,875	)		23.49
Outstanding at end of year	541,414		$	26.65	6.3 years	648,311		$	20.74	5.6 years	662,841		$	15.70	5.6 years
Options exercisable at year-end	305,991		$	20.00	4.9 years	404,851		$	12.58	4.0 years	419,766		$	9.20	4.1 years
Weighted average fair value of options granted during the year			$	11.81				$	16.76				$	14.14
Shares available for grant	183,990					270,090					359,690

The aggregate intrinsic value (the difference between the Company’s closing stock price on the last trading day of the year and the exercise price, multiplied by the number of in-the-money options) of 541,414 and 648,311 stock options outstanding at December 31, 2019 and 2018 was $8.6 million and $8.7 million, respectively. The aggregate intrinsic value of 305,991 and 404,851 stock options exercisable at December 31, 2019 and 2018 was $6.9 million and $8.0 million, respectively.

The fair value of the option grant is estimated on the date of grant using the Black-Scholes option-pricing model. The following assumptions were used for grants:


	2019	2018	2017
Dividend yield	-	-	-
Expected life	7 years	7 years	7 years
Expected volatility	28.21%	32.07%	34.63%
Risk-free interest rate	2.59%	2.50%	2.04%

At December 31, 2019, there was $2.0 million of total unrecognized compensation cost related to nonvested stock option grants. The cost is expected to be recognized over a weighted-average period of 2.4 years. The fair value of stock option grants that vested during 2019, 2018, and 2017 was $1.2 million, $973,000 and $775,000, respectively.

Restricted Stock Grants
On May 17, 2016, the Company adopted the 2016 Equity Incentive Plan which included a provision for the issuance of 50,000 shares of common stock to be issuable as restricted stock grants. As of December 31, 2019, 32,349 shares of restricted stock were available for grant.

Shares of restricted stock granted to employees under the stock plans are subject to restrictions as to continuous employment for a specified time period following the date of grant. During this period, the holder is entitled to full voting rights and dividends.

A summary of the status of the Company’s nonvested restricted stock and changes for the years ended December 31, 2019, 2018, and 2017 is as follows:


	December 31,
			2019				2018				2017
			Weighted				Weighted				Weighted
			Average				Average				Average
	Restricted		Grant-Date		Restricted		Grant-Date		Restricted		Grant-Date
	Shares		Fair Value		Shares		Fair Value		Shares		Fair Value
Nonvested at beginning of year	29,625		$	34.00	25,000		$	26.43	36,125		$	20.13
Granted	14,700			33.64	13,000			42.87	6,500			35.14
Vested	(10,375	)		31.61	(8,375	)		25.17	(17,625	)		16.73
Forfeited	(1,125	)		28.03	-			-	-			-
Nonvested at end of year	32,825		$	34.78	29,625		$	34.00	25,000		$	26.43

At December 31, 2019, there was $793,000 of total unrecognized compensation cost related to nonvested restricted stock grants. The cost is expected to be recognized over a weighted-average period of 2.6 years.