Note 15. Stock Based Compensation

In 2004, the Corporation adopted the Employee Stock Purchase Plan of 2004 (ESPP). Under the ESPP of 2004, options for 250,000 shares of stock can be issued to eligible employees. The number of shares that can be purchased by each participant is defined by the plan and the Board of Directors sets the option price. However, the option price cannot be less than 90% of the fair market value of a share of the Corporation’s common stock on the date the option is granted. The Board of Directors also determines the expiration date of the options; however, no option may have a term that exceeds one year from the grant date. ESPP options are exercisable immediately upon grant. Any shares related to unexercised options are available for future grant The Board of Directors may amend, suspend or terminate the ESPP at any time. The grant price of the 2018 ESPP options was set at 95% of the stock’s fair value at the time of the award.

In 2002, the Corporation adopted the Incentive Stock Option Plan of 2002 (ISOP). The plan had a 10 year life with regard to awarding options and expired in 2012. However, awards granted prior to expiration of the plan will continue to be exercisable in accordance with the plan or, if forfeited, rolled into the 2013 plan. In 2013, the Corporation approved the Incentive Stock Option Plan of 2013. Under the 2013 ISOP, options for 354,877 shares of stock were authorized to be issued to selected Officers, as defined in the plan. The number of options available to be awarded to each eligible Officer is determined by the Board of Directors, but is limited with respect to the aggregate fair value of the options as defined in the plan. The exercise price of the option may be no less than 100% of the fair value of a share of the Corporation’s common stock on the date the option is granted. The options have a life of 10 years and may be exercised only after the optionee has completed 6 months of continuous employment with the Corporation or its Subsidiary immediately following the grant date, or upon a change of control as defined in the plan.

The ESPP and ISOP options outstanding at December 31, 2018 are all exercisable. The ESPP options expire on June 30, 2019 and the ISOP options expire 10 years from the grant date. The following table summarizes the stock option activity:


(Dollars in thousands except share and per share data)
	ESPP	Weighted Average		Aggregate
	Options	Price Per Share		Intrinsic Value
Balance Outstanding at December 31, 2015	22,286	$	23.42	$	2
Granted	24,434		22.46
Exercised	(907)		22.66
Expired	(23,055)		23.38
Balance Outstanding at December 31, 2016	22,758	$	22.46	$	140
Granted	19,086		29.95
Exercised	(6,827)		23.00
Expired	(17,180)		22.79
Balance Outstanding at December 31, 2017	17,837	$	29.95	$	132
Granted	19,790		32.73
Exercised	(3,257)		30.54
Expired	(15,992)		30.07
Balance Outstanding at December 31, 2018	18,378	$	32.73	$	—

Shares available for future grants at December 31, 2018	196,284


	ISOP	Weighted Average		Aggregate
	Options	Price Per Share		Intrinsic Value
Balance Outstanding at December 31, 2015	53,075	$	22.56	$	50
Granted	24,450		21.27
Exercised	(3,800)		16.00
Forfeited	(15,000)		24.14
Balance Outstanding at December 31, 2016	58,725	$	22.03	$	386
Granted	33,450		30.00
Exercised	(750)		23.77
Forfeited	(6,200)		27.37
Balance Outstanding at December 31, 2017	85,225	$	24.75	$	1,075
Granted	34,054		34.10
Exercised	(12,268)		21.55
Forfeited	(3,000)		23.77
Balance Outstanding at December 31, 2018	104,011	$	28.22	$	341

Shares available for future grants at December 31, 2018	259,123

The following table provides information about the options outstanding at December 31, 2018:


	Options					Weighted
	Outstanding		Exercise Price or	Weighted Average		Average Remaining
Stock Option Plan	and Exercisable		Price Range	Exercise Price		Life (years)
Employee Stock Purchase Plan	18,378	$	32.73	$	32.73	0.5

Incentive Stock Option Plan	3,107		16.11		16.11	0.2
Incentive Stock Option Plan	33,400		21.27 - 22.05		21.56	6.8
Incentive Stock Option Plan	67,504		30.00 - 34.10		32.07	8.7
ISOP Total/Average	104,011			$	28.22	7.8

The fair value of the ISOP options granted has been estimated using the Black-Scholes method and the following assumptions for the years shown:


	2018		2017		2016
Incentive Stock Option Plan
Options granted		34,054		33,450		24,450
Risk-free interest rate		2.66%		1.87%		1.22%
Expected volatility of the Corporation's stock		19.51%		23.12%		25.76%
Expected dividend yield		2.49%		2.94%		3.23%
Expected life (in years)		5.25		5.25		5.25
Weighted average fair value of options granted	$	5.42	$	4.81	$	3.58

(Dollars in thousands)
Compensation expense included in net income
ESPP	$	—	$	—	$	—
ISOP		185		161		88
Total compensation expense included in net income	$	185	$	161	$	88

The Corporation uses the “simplified” method for estimating the expected term of the ISO award. The risk-free interest rate is the U.S. Treasury rate commensurate with the expected average life of the option at the date of grant. The volatility of the Corporation’s stock is based on historical volatility for a period equal to the term of the award and the dividend yield is the yield at the date of the award. There is no unrecognized compensation expense on any options outstanding at December 31, 2018.