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Note 20 - Stock-based Compensation

12 Months Ended

Dec. 31, 2023

Notes to Financial Statements

Share-Based Payment Arrangement [Text Block]

NOTE 20 – STOCK-BASED COMPENSATION

Stock Options and Restricted Stock

On May 17, 2018, the shareholders of the Company approved the 2018 Equity Incentive Plan (the “2018 Plan”) that authorized 1.3 million shares of the Company’s common stock to be awarded. The 2018 Plan provides for the grant of incentive stock options, non-qualified stock options, and up to 326,000 shares as restricted stock awards (“RSAs”) to directors, emeritus directors, officers, employees or advisory directors of the Company. At December 31, 2023, there were 253,532 stock option awards and 76,622 RSAs available for future grants under the 2018 Plan.

For the years ended December 31, 2023, 2022, and 2021, total share-based compensation expense was $2.0 million, $2.0 million, and $1.4 million, respectively. The related income tax benefit was $422,000, $414,000, and $304,000 for the years ended December 31, 2023, 2022, and 2021, respectively.

Stock Options

The 2018 Plan consists of stock option awards that may be granted as incentive stock options or nonqualified stock options. Stock option awards generally vest over a one-year period for independent directors or over a five-year period for employees and officers with 20% vesting on the anniversary date of each grant date as long as the award recipient remains in service to the Company. The options are exercisable after vesting for up to the remaining term of the original grant. The maximum term of the options granted is 10 years. Any unexercised stock options will expire 10 years after the grant date or sooner in the event of the award recipient’s termination of service with the Company or the Bank. The fair value of each stock option award is estimated on the grant date using a Black-Scholes Option pricing model that uses the following assumptions. The dividend yield is based on the current quarterly dividend in effect at the time of the grant. Historical employment data is used to estimate the forfeiture rate. The historical volatility of the Company's stock price over a specified period of time is used for the expected volatility. The Company bases the risk-free interest rate on the comparable U.S. Treasury rate for the discount rate associated with the stock in effect on the date of the grant. The Company elected to use Staff Accounting Bulletin 107, simplified expected term calculation for the “Share-Based Payments” method permitted by the SEC to calculate the expected term. This method uses the vesting term of an option along with the contractual term, setting the expected life at 5.5 years for one-year vesting and 6.5 years for five-year vesting.

The fair value of options granted was determined using the following weighted-average assumptions as of the grant date for the years indicated:

		For the Year Ended December 31,
		2023				2022				2021
Dividend yield			3.25	%			2.59	%			1.58	%
Expected volatility			28.24	%			26.86	%			37.10	%
Risk-free interest rate			4.35	%			2.88	%			1.01	%
Expected term in years			6.5				6.5				6.5
Weighted-average grant date fair value per option granted		$	7.61			$	7.13			$	10.67

The following table presents a summary of the Company’s stock option awards during the years indicated (shown as actual). Share and per share data has been adjusted for all periods to reflect a two-for-one stock split effective July 14, 2021.

										Weighted-Average
						Weighted-				Remaining
						Average				Contractual Term In				Aggregate
		Shares				Exercise Price				Years				Intrinsic Value
Outstanding at January 1, 2021			671,754			$	19.45				6.58			$	5,721,159
Granted			118,850			$	35.46				—				—
Less exercised			176,978			$	12.73				—			$	4,265,369
Forfeited or expired			—				—				—				—
Outstanding at December 31, 2021			613,626			$	25.24				7.17			$	5,362,902

Outstanding at January 1, 2022			613,626			$	25.24				7.17			$	5,362,902
Granted			99,200			$	30.94				—				—
Less exercised			64,994			$	19.75				—			$	790,558
Forfeited or expired			—				—				—				—
Outstanding at December 31, 2022			647,832			$	26.67				6.84			$	4,627,255

Outstanding at January 1, 2023			647,832			$	26.67				6.84			$	4,627,255
Granted			103,000			$	30.73				—				—
Less exercised			47,734			$	10.17				—			$	970,064
Forfeited or expired			40,819			$	32.96				—				—
Outstanding at December 31, 2023			662,279			$	28.12				6.69			$	5,852,975

Expected to vest, assuming a 0.31% annual forfeiture rate at December 31, 2023⁽¹⁾			650,507			$	28.10				6.60			$	5,761,706

Exercisable at December 31, 2023			383,462			$	26.94				5.52			$	3,842,104

___________________________

(1)	Forfeiture rate has been calculated and estimated to assume a forfeiture of 3.1% of the options over 10 years.

At December 31, 2023, there was $1.7 million of total unrecognized forfeiture adjusted compensation cost related to nonvested stock options granted under the 2018 Plan. The cost is expected to be recognized over the remaining weighted-average vesting period of 3.4 years.

Restricted Stock Awards

The RSAs fair value is equal to the value of the market price of the Company’s common stock on the grant date and compensation expense is recognized over the vesting period of the awards based on the fair value of the restricted stock. Shares granted under the 2018 Plan generally vest over a one-year period for independent directors, a five-year period for employees and officers, beginning on the grant date. Any nonvested RSAs will be forfeited and be made available for future grants under the 2018 Plan in the event of the award recipient’s termination of service with the Company or the Bank.

The following table presents a summary of the Company’s nonvested awards during the years indicated (shown as actual). Share and per share data has been adjusted for all periods to reflect a two-for-one stock split effective July 14, 2021.

						Weighted-Average
						Grant-Date Fair Value
Nonvested Shares		Shares				Per Share
Nonvested at January 1, 2021			110,184			$	24.35
Granted			41,350				35.46
Less vested			29,862				24.78
Forfeited or expired			—				—
Nonvested at December 31, 2021			121,672			$	28.02

Nonvested at January 1, 2022			121,672			$	28.02
Granted			35,050				30.94
Less vested			38,192				28.12
Forfeited or expired			—				—
Nonvested at December 31, 2022			118,530			$	28.85

Nonvested at January 1, 2023			118,530			$	28.85
Granted			37,600				30.73
Less vested			44,462				28.24
Forfeited or expired			9,524				30.96
Nonvested at December 31, 2023			102,144			$	29.61

At December 31, 2023, there was $2.5 million of total unrecognized forfeiture adjusted compensation costs related to nonvested shares granted under the 2018 Plan as RSAs. The cost is expected to be recognized over the remaining weighted-average vesting period of 3.3 years.