13) Equity Plan

The Company maintained an Amended and Restated 2004 Equity Plan (the “2004 Plan”) for directors, officers, and key employees. The 2004 Plan was terminated on May 23, 2013. The Company’s shareholders approved the 2013 Equity Incentive Plan (the “2013 Plan”). The equity plans provide for the grant of incentive and nonqualified stock options and restricted stock. The equity plans provide that the option price for both incentive and nonqualified stock options will be determined by the Board of Directors at no less than the fair value at the date of grant. Options granted vest on a schedule determined by the Board of Directors at the time of grant. Generally options vest over four years. All options expire no later than ten years from the date of grant. Restricted stock is subject to time vesting. In 2019, the Company granted 299,500 shares of nonqualified stock options and 134,653 shares of restricted stock subject to time vesting requirements. There were 796,957 shares available for the issuance of equity awards under the 2013 Plan as of December 31, 2019.

The Presidio equity plans were assumed by the Company and the outstanding options issued under the Presidio equity plans were converted into the right to receive the Company’s shares at the exercise price pursuant to the formula defined in the merger agreement. Consideration for the assumed Presidio stock options exchanged for 1,176,757 shares of the Company’s stock options totaled $7,426,000.

Stock option activity under the equity plans is as follows:


				Weighted
		Weighted		Average
		Average		Remaining	Aggregate
	Number	Exercise		Contractual	Intrinsic
Total Stock Options	of Shares	Price		Life (Years)	Value
Outstanding at January 1, 2019	1,570,603	$	10.76
Granted	299,500	$	12.16
Assumed Presidio Bank stock options exchanged for
Heritage Commerce Corp stock options	1,176,757	$	5.05
Exercised	(266,689)	$	6.10
Forfeited or expired	(67,325)	$	14.31
Outstanding at December 31, 2019	2,712,846	$	8.80	5.62	$	12,369,413
Vested or expected to vest	2,550,075			5.62	$	11,627,248
Exercisable at December 31, 2019	2,206,775			4.93	$	12,151,054

Information related to the equity plans for each of the last three years:


	December 31,
	2019		2018		2017
Intrinsic value of options exercised	$	1,618,615	$	1,844,909	$	1,342,794
Cash received from option exercise	$	1,626,113	$	2,667,305	$	1,368,673
Tax benefit realized from option exercises	$	258,037	$	534,638	$	547,817
Weighted average fair value of options granted	$	1.91	$	3.03	$	2.66

As of December 31, 2019, there was $ 1,156,000 of total unrecognized compensation cost related to nonvested stock options granted under the equity plans. That cost is expected to be recognized over a weighted‑average period of approximately 2.64 years.

The fair value of each option grant is estimated on the date of grant using the Black‑Scholes option pricing model that uses the assumptions noted in the following table, including the weighted average assumptions for the option grants in each year.


	December 31,
	2019		2018		2017
Expected life in months(1)	72		72		72
Volatility(1)	24	%	21	%	24	%
Weighted average risk-free interest rate(2)	2.23	%	2.88	%	1.94	%
Expected dividends(3)	3.95	%	2.64	%	2.78	%

(1)The expected life of employee stock options represents the weighted average period the stock options are expected to remain outstanding based on historical experience. Volatility is based on the historical volatility of the stock price over the same period of the expected life of the option.

(2)Based on the U.S. Treasury constant maturity interest rate with a term consistent with the expected life of the option granted.

(3)Each grant’s dividend yield is calculated by annualizing the most recent quarterly cash dividend and dividing that amount by the market price of the Company’s common stock as of the grant date

The Company estimates the impact of forfeitures based on historical experience. Should the Company’s current estimate change, additional expense could be recognized or reversed in future periods. The Company issues authorized shares of common stock to satisfy stock option exercises.

Restricted stock activity under the equity plans is as follows:


		Weighted
		Average Grant
	Number	Date Fair
Total Restricted Stock Award	of Shares	Value
Nonvested shares at January 1, 2019	193,298	$	11.04
Granted	134,653	$	12.16
Vested	(82,498)	$	12.37
Forfeited or expired	(6,000)	$	17.11
Nonvested shares at December 31, 2019	239,453	$	11.23

As of December 31, 2019, there was $2,340,000 of total unrecognized compensation cost related to nonvested restricted stock awards granted under the 2013 Plan. The cost is expected to be recognized over a weighted-average period of approximately 2.11 years.

The Company has two share based compensation plans. Total compensation cost has been charged against income for those plans was $1,924,000, $1,817,000, $1,750,000, for 2019, 2018, and 2017, respectively. The total income tax benefit was $239,000, $424,000, and $146,000 for 2019, 2018, and 2017, respectively.