NOTE P - EMPLOYEE AND DIRECTOR BENEFIT PLANS

401(k) Plan

The Company has a 401(k) Plan and substantially all employees participate in the plan. The Company matches 100% of the first 6% of an employee’s compensation contributed to the plan. Expenses attributable to the plan amounted to $698,000, $639,000, and $465,000 for the years ended December 31, 2019, 2018 and 2017, respectively.

Employment Agreements

The Company has entered into employment agreements with five executive officers to promote a stable and competent management base. These agreements provide for benefits as specified in the contracts and cannot be terminated by the Board of Directors, except for cause, without prejudicing the officer’s right to receive certain vested rights, including compensation. In the event of a change in control of the Company, as outlined in the agreements, the acquirer will generally be bound by the terms of those contracts.

Supplemental Executive Retirement Plans

The Company implemented a nonqualified supplemental executive retirement plan for the former Chief Executive Officer during 2003. Benefits accrue and vest during the period of employment, and will be paid in monthly benefit payments over the officer’s life after retirement. Provisions of $81,000, $36,000, and $53,000 were expensed for future benefits to be provided under this plan during 2019, 2018 and 2017, respectively. In conjunction with the implementation of this plan, the Company has purchased life insurance on certain key officers to help offset plan accruals. The life insurance policies provide the payment of a death benefit in the event an insured officer dies prior to attainment of retirement age. The total liability under this plan at December 31, 2019 and 2018 was $24,000 and $85,000, respectively.

As part of the acquisition of Progressive State Bank (“Progressive”), the Company assumed a liability for the supplemental early retirement plan for Progressive’s Chief Executive Officer. Provisions of $81,000, $(35,000), and $36,000 and were expensed in 2019, 2018 and 2017, resulting in a total liability of $265,000 and $286,000 as of December 31, 2019 and 2018, respectively. Due to the plan having a tax gross up feature that was impacted by lower tax rates under the Tax Act, the Company recorded a negative provision for 2018. Corresponding to this liability, Progressive had purchased a life insurance policy on a key officer to help offset the expense associated with future benefit payments. This policy was acquired by the Company upon its acquisition of Progressive.

The Company approved a supplemental executive retirement plan for two of its executives in 2019. Provisions of $64,000 were expensed during 2019 resulting in a total liability of $64,000. Proceeds from purchased life insurance on certain key officers were used to offset plan accruals.

Directors Deferred Compensation

The Company has instituted a Directors’ Deferral Plan (“Deferral Plan”) whereby individual directors may elect annually to defer receipt of all or a designated portion of their directors’ fees for the coming year. Amounts so deferred are used to purchase shares of the Company’s common stock on the open market by the administrator of the Deferral Plan or to issue shares from the Company’s authorized but unissued shares, with such deferred compensation disbursed in the future as specified by the director at the time of his or her deferral election. All deferral amounts and matching contributions, if any, are paid into a rabbi trust with a separate account for each participant under the plan. Net compensation and other expenses attributable to this plan for the years ended December 31, 2019, 2018 and 2017 were $200,000, $97,000, and $178,000, respectively. The Directors’ Deferral Plan was amended and restated on September 22, 2015 to ensure compliance with applicable regulations and to provide that the eventual payment of compensation deferred under the plan may be made only in the form of the Registrant’s common stock. A liability of $2.8 million and $2.6 million related to this plan is included in shareholders’ equity for December 31, 2019 and 2018, respectively.

Equity-Based Compensation Plans

The Company utilizes equity-based awards as a component of its compensation of employees and directors. These equity-based awards may be in the form of incentive stock options, nonstatutory stock options, stock appreciation rights, restricted stock awards, or restricted stock unit awards. Awards are granted pursuant to the Company’s equity-based compensation plans. The Company’s shareholders approved all equity-based compensation plans. At December 31, 2019, the Company had awards outstanding under its 2004 Incentive Stock Option Plan, 2008 Omnibus Stock Ownership and Long Term Incentive Plan (the “2008 Omnibus Plan”), 2010 Omnibus Stock Ownership and Long Term Incentive Plan (the “2010 Omnibus Plan”), and 2018 Omnibus Stock Incentive Plan (the “2018 Omnibus Plan”).

As of December 31, 2019, the Company had awards covering 13,000 shares outstanding under the 2004 Incentive Stock Option Plan, awards covering 33,200 shares outstanding under the 2008 Omnibus Plan, awards covering 163,700 shares outstanding under the 2010 Omnibus Plan, and awards covering 58,500 shares outstanding under the 2018 Omnibus Plan.

The 2018 Omnibus Plan became effective upon the approval of shareholders on May 22, 2018. As of December 31, 2019, the 2018 Omnibus Plan was the only plan that had shares available for future grants, and there were 568,900 shares remaining available for grant. All other plans have been frozen as to new grants.

In 2019, the Company awarded fully vested stock grants under the 2018 Omnibus Plan of 10,569 common shares to its independent directors. The value of the stock grant totaled $130,000 with each director receiving 813 shares.

For years when stock options were granted the estimated weighted average fair market value of each option awarded, using the Black-Scholes option pricing model, together with the assumptions used in estimating those weighted average fair values, are displayed below:


	2019			2018			2017

Estimated fair value of options granted	$	5.99		$	6.07		$	5.47

Assumptions in estimating average option values:
Risk-free interest rate		2.59	%		2.94	%		2.07	%
Dividend yield		—	%		—	%		—	%
Volatility		42.18	%		36.67	%		42.42	%
Expected life (in years)		8.00			8.00			8.00

A summary of the Company’s option plans as of and for the year ended December 31, 2019 is as follows:


		Outstanding Options			Exercisable Options
	Shares		Weighted			Weighted
	Available		Average			Average
	for Future	Number	Exercise		Number	Exercise
	Grants	Outstanding	Price		Outstanding	Price

At December 31, 2018	597,500	239,955	$	8.63	113,013	$	6.71

Options granted/vested	(58,500)	58,500		—	35,660		—
Stock grants	(10,569)	—		12.30	—		—
Options exercised	26,813	(26,813)		8.50	(26,813)		8.50
Options expired	—	—		—	—		—
Options forfeited	3,100	(3,100)		10.92	(200)	$	5.25

At December 31, 2019	568,913	268,542	$	9.55	121,660	$	7.80

The aggregate intrinsic value of options outstanding as of December 31, 2019 and 2018 was $740,000 and $900,000, respectively. The aggregate intrinsic value of options exercisable as of December 31, 2019 and 2018 was $548,000 and $641,000, respectively. The unrecognized compensation expense for outstanding options at December 31, 2019, 2018, and 2017 was $460,000, $642,000, and $768,000, respectively. As of December 31, 2019, this cost is expected to be recognized over a weighted average period of 1.62 years.

The weighted average remaining life of options outstanding and options exercisable as of December 31, 2019 was 6.57 years and 4.85 years, respectively. The weighted average remaining life of options outstanding and options exercisable as of December 31, 2018 was 6.57 years and 4.75 years, respectively. Information regarding the stock options outstanding at December 31, 2019 is summarized below:


	Number	Number
	of options	of options
Range of Exercise Prices	outstanding	exercisable

$2.25 - $7.07	67,922	62,920
$7.08 - $10.69	41,620	18,040
$10.70 - $12.99	159,000	40,700

Outstanding at end of year	268,542	121,660

A summary of the status of the Company’s non-vested options as of December 31, 2019 and changes during the year ended December 31, 2019, is presented below:


		Weighted-Average
		Grant Date
Non-vested Options	Options	Fair Value

Non-vested at December 31, 2018	126,942	$	5.16
Granted	58,500		5.99
Vested	(35,660)		5.02
Expired	—		—
Forfeited	(3,100)		5.55
Non-vested at December 31, 2019	146,882		5.51

For the years ended December 31, 2019, 2018 and 2017, the intrinsic value of options exercised was $148,000, $213,000 and $197,000, respectively. For the years ended December 31, 2019, 2018 and 2017, the grant-date fair value of options vested was $179,000, $181,000, and $66,000, respectively. In addition, there were no stock options acquired in the Premara merger. For the years ended December 31, 2019 and 2018, respectively, $68,000 and $79,000 in tax benefits were recognized from non-qualified stock option exercises.