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Note 7 - Stock-based Compensation

9 Months Ended

Sep. 30, 2020

Share-based Payment Arrangement [Text Block]

7. STOCK-BASED COMPENSATION

In May 2013, the Company established the 2013 Stock Option Plan for which 391,835 shares of common stock are reserved and 109,100 shares are available for future grants as of September 30, 2020. The 2013 Plan requires that the option price may not be less than the fair market value of the stock at the date the option is granted, and that the stock must be paid in full at the time the option is exercised. Payment in full for the option price must be made in cash, with Company common stock previously acquired by the optionee and held by the optionee for a period of at least nine months, in options of the Optionee that are fully vested and exercisable or in any combination of the foregoing. The options expire on dates determined by the Board of Directors, but not later than ten years from the date of grant.

During the nine months ended September 30, 2020 the Company granted options to purchase 5,000 shares of common stock. No options were granted during the nine months ended September 30, 2019.

The fair value of each option was estimated on the date of grant using the following assumptions.

	2020
Expected life of stock options (in years)		5.1
Risk free interest rate		1.68	%
Daily Volatility		26.0	%
Dividend yields		1.29	%
Weighted-average fair value of options granted during the nine months ended September 30, 2020	$	5.92

The Company determines the fair value of options on the date of grant using a Black-Scholes-Merton option pricing model that uses assumptions based on expected option life, expected stock volatility and the risk-free interest rate. The expected volatility assumptions used by the Company are based on the historical volatility of the Company’s common stock over the most recent period commensurate with the estimated expected life of the Company’s stock options. The Company bases its expected life assumption on its historical experience and on the terms and conditions of the stock options it grants to employees. The risk-free rate is based on the U.S. Treasury yield curve for the periods within the contractual life of the options in effect at the time of the grant.

A summary of the activity within the 2013 Plan follows:

	*Shares*			*Weighted Average Exercise Price*		*Weighted Average Remaining Contractual Term in Years*		*Intrinsic Value*
Options outstanding at January 1, 2020		302,385		$	17.73
Options granted		5,000			26.42
Options cancelled		(7,600	)		24.40
Options exercised		(17,050	)		7.29
Options outstanding at September 30, 2020		282,735		$	18.34		5.5	$	947,347
Options exercisable at September 30, 2020		114,185		$	12.71		3.6	$	947,347
Expected to vest after September 30, 2020		150,431		$	22.15		6.8	$	-

As of September 30, 2020, there was $616,000 of total unrecognized compensation cost related to non-vested, share-based compensation. That cost is expected to be recognized over a weighted average period of 2.8 years.

The total fair value of options vested during the nine months ended September 30, 2020 and 2019 was $186,000 and $197,000, respectively. The total intrinsic value of options at time of exercise was $285,000 and $311,000 for the nine months ended September 30, 2020 and 2019, respectively.

Compensation cost related to stock options recognized in operating results under the stock option plans was $195,000 and $150,000 for the nine months ended September 30, 2020 and 2019, respectively. The associated income tax benefit recognized was $14,000 for the nine months ended September 30, 2020 and $10,000 for the nine months ended nine months ended September 30, 2019. Compensation cost related to stock options recognized in operating results under the stock option plan was $62,000 and $50,000 for the three months ended September 30, 2020 and 2019, respectively. The associated income tax benefit recognized was $4,000 for the three months ended September 30, 2020 and $3,000 for the three months ended September 30, 2019.

Cash received from option exercises under the plan for the nine months ended September 30, 2020 and 2019 were $79,000 and $103,000, respectively. The tax benefit realized for the tax deductions from option exercise totaled $10,000 and $24,000 for the nine months ended September 30, 2020 and 2019, respectively.