Note 15 - Stock-based Compensation

12 Months Ended

Dec. 31, 2024

Notes to Financial Statements

Share-Based Payment Arrangement [Text Block]

Note 15 – Stock–Based Compensation

NHC recognizes stock–based compensation for all stock options and restricted stock granted over the requisite service period using the fair value for these grants as estimated at the date of grant either using the Black–Scholes pricing model for stock options or the quoted market price for restricted stock.

The Compensation Committee of the Board of Directors ("the Committee") has the authority to select the participants to be granted options; to designate whether the option granted is an incentive stock option ("ISO"), a non–qualified option, or a stock appreciation right; to establish the number of shares of common stock that may be issued upon exercise of the option; to establish the vesting provision for any award; and to establish the term any award may be outstanding. The exercise price of any ISO’s granted will not be less than 100% of the fair market value of the shares of common stock on the date granted and the term of an ISO may not be any more than ten years. The exercise price of any non–qualified options granted will not be less than 100% of the fair market value of the shares of common stock on the date granted unless so determined by the Committee.

In May 2020, our stockholders approved the 2020 Omnibus Equity Incentive Plan (the “2020 Equity Incentive Plan”) pursuant to which 2,500,000 shares of our common stock were available to grant for restricted stock, stock appreciation rights, stock options, and an employee stock purchase plan. The employee stock purchase plan allows employees to purchase our shares of stock through payroll deductions. At December 31, 2024, 1,503,127 shares were available for future grants under the 2020 Equity Incentive Plan.

Compensation expense is recognized only for the awards that ultimately vest. The Company accounts for forfeitures when they occur. Stock–based compensation totaled $4,160,000, $2,782,000, and $2,612,000, for the years ended December 31, 2024, 2023, and 2022, respectively. Stock–based compensation is included in salaries, wages and benefits in the consolidated statements of operations. The total intrinsic value of shares exercised (and tax deductions taken) was $9,143,000, $2,769,000, and $583,000 for the years ended December 31, 2024, 2023 and 2022, respectively. 

At December 31, 2024, the Company had $4,625,000 of unrecognized compensation cost related to unvested stock-based compensation awards. This unrecognized compensation cost will be amortized over an approximate two-and-a-half-year period.

Stock Options

The Company is required to estimate the fair value of stock–based awards on the date of grant. The fair value of each option award is estimated using the Black–Scholes option valuation model with the weighted average assumptions indicated in the following table. Each grant is valued as a single award with an expected term based upon expected employment and termination behavior. Compensation cost is recognized over the requisite service period in a manner consistent with the option vesting provisions. The straight–line attribution method requires that compensation expense is recognized at least equal to the portion of the grant–date fair value that is vested at that date. The expected volatility is derived using weekly historical data for periods immediately preceding the date of grant. The risk–free interest rate is the approximate yield on the United States Treasury Strips having a life equal to the expected option life on the date of grant. The expected life is an estimate of the number of years an option will be held before it is exercised. The following table summarizes the assumptions used to value the options granted in the periods shown.

	Year Ended December 31,
	2024		2023		2022
Risk–free interest rate		4.40%		4.52%		1.83%
Expected volatility		24.1%		29.3%		31.4%
Expected life, in years		2.9		2.9		2.9
Expected dividend yield		2.63%		4.41%		3.57%

The following table summarizes option activity:

	Number of Shares			Weighted Average Exercise Price		Aggregate Intrinsic Value
Options outstanding at January 1, 2022		374,926		$	72.95		−
Options granted		302,266			64.72		−
Options exercised		(32,597	)		64.49		−
Options cancelled		(199,451	)		75.98		−
Options outstanding at December 31, 2022		445,144			66.62		−
Options granted		299,278			54.44		−
Options exercised		(103,481	)		64.72		−
Options cancelled		(52,407	)		60.58		−
Options outstanding at December 31, 2023		588,534			61.30		−
Options granted		297,783			94.42		−
Options exercised		(219,973	)		64.73		−
Options cancelled		(35,102	)		79.20		−
Options outstanding at December 31, 2024		631,242		$	74.73	$	20,720,547
Options exercisable at December 31, 2024		151,439		$	63.80	$	6,627,473

Options Outstanding December 31, 2024	Exercise Prices			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life in Years
328,137	$53.94	–	$69.19	$	58.82		2.7
303,105	$71.64	–	$96.03		91.96		3.9
631,242				$	74.73		3.3