Stock-based Compensation

6 Months Ended

Jun. 30, 2020

Share-based Payment Arrangement [Abstract]

Stock-based CompensationStock Options and Restricted Stock

The Company currently has one active shareholder approved Equity Incentive Plan, the Amended and Restated 2013 Equity Incentive Plan (the "2013 Plan"). The 2013 Plan permits the grant of restricted stock, restricted stock units, stock options, and stock appreciation rights. The equity incentive plan approved by stockholders in 2008 (the"2008 Plan") expired in November 2018 and no further awards may be made under the 2008 Plan; provided, however, all awards outstanding under the 2008 Plan remain outstanding in accordance with their terms. Under the 2013 Plan, 181,750 shares of common stock were approved for awards for stock options and stock appreciation rights and 116,700 shares of common stock were approved for awards for restricted stock and restricted stock units.

As of June 30, 2020, on an adjusted basis, awards for stock options totaling 267,752 shares and awards for restricted stock totaling 134,148 shares of Company common stock have been granted, net of any forfeitures, to participants in the Plans. Share-based compensation expense was $46,000 and $231,000 for the three and six months ended June 30, 2020, respectively, and was $48,000 and $87,000 or the three and six months ended June 30, 2019, respectively.

Stock Option Awards

All stock option awards granted under the 2008 Plan vest in 20 percent annual increments commencing one year from the grant date in accordance with the requirements of the 2008 Plan. The stock option awards granted to date under the 2013 Plan provide

for immediate vesting of a portion of the award with the balance of the award vesting on the anniversary date of each grant date

in equal annual installments over periods of one-to-four years subject to the continued service of the participant with the

Company. All of the options granted under the 2008 Plan and the 2013 Plan are exercisable for a period of 10 years from the date of grant, subject to vesting. The following is a summary of the Company’s stock option award activity during the six months ended June 30, 2020:


	Shares	Weighted- Average Exercise Price		Weighted-Average Remaining Contractual Term in Years	Aggregate Intrinsic Value
Outstanding at January 1, 2020	121,260	$	20.80	5.33	$	1,842,687
Granted	8,225	36.26
Exercised	(14,434)	15.99
Forfeited	(2,205)	29.25

Outstanding at June 30, 2020	112,846	22.38		4.74	501,807
Exercisable	97,046	20.65		4.14	489,312
Expected to vest, assuming a 0% forfeiture rate over the vesting term	16,169	$	34.19	7.86	$	1,662

As of June 30, 2020, there was $89,000 of total unrecognized compensation cost related to non-vested stock options granted under the Plans. The cost is expected to be recognized over the remaining weighted-average vesting period of approximately 2.89 years.

The fair value of each option grant is estimated as of the grant date using the Black-Scholes option-pricing model. The fair value of options granted for the six months ended June 30, 2020 and 2019 were determined using the following weighted-average assumptions as of the grant date.


	June 30, 2020			June 30, 2019
Annual dividend yield	1.60		%	1.72		%
Expected volatility	21.67		%	21.68		%
Risk-free interest rate	1.38		%	2.64		%
Expected term	6.50 years			6.50 years
Weighted-average grant date fair value per option granted	$	7.14		$	7.24

Restricted Stock Awards

The fair value of the restricted stock awards is equal to the fair value of the Company's stock at the date of grant. Compensation

expense is recognized over the vesting period that the awards are based. The restricted stock awards granted under the 2008

Plan vest in 20% annual increments commencing one year from the grant date. The restricted stock awards granted to date under the 2013 Plan provide for immediate vesting of a portion of the award with the balance of the award vesting on the anniversary date of each of the grant date in equal annual installments over periods of one-to-four years subject to the continued service of the participant with the Company.

The following is a summary of the Company’s non-vested restricted stock award activity during the six months ended June 30, 2020:


	Shares	Weighted-Average Grant-Date Fair Value Per Share		Aggregate Intrinsic Value Per Share
Non-vested at January 1, 2020	12,290	$	33.32
Granted	13,600	36.26
Vested	(6,816)	34.60
Forfeited	(1,690)	34.15

Non-Vested at June 30, 2020	17,384	$	35.03	$	24.15
Expected to vest assuming a 0% forfeiture rate over the vesting term	17,384	$	35.03	$	24.15

As of June 30, 2020, there was $535,000 of unrecognized compensation cost related to non-vested restricted stock granted under the Plans. The cost is expected to be recognized over the weighted-average vesting period of 3.12 years. The total fair value of shares vested for the six months ended June 30, 2020 and 2019 was $236,000 and $95,000, respectively.

Employee Stock Ownership Plan

In January 2008, the ESOP borrowed $1.2 million from the Company to purchase common stock of the Company which was paid in full in 2017. In August 2012, in conjunction with the Company’s conversion to a full stock company from the mutual holding company structure, the ESOP borrowed an additional $1.1 million from the Company to purchase common stock of the Company. The loan is being repaid principally by the Bank through contributions to the ESOP over a period of ten years. The interest rate on the loan is fixed at 2.25% per annum. As of June 30, 2020, the remaining balance of the ESOP loan was $126,000.

Neither the loan balance nor the related interest expense is reflected on the condensed consolidated financial statements.

For the calendar year 2020, the ESOP was committed to release 11,340 shares of the Company’s common stock to participants and held 11,340 unallocated shares remaining to be released in 2021. The fair value of the 142,463 shares held by the ESOP trust was $3.4 million at June 30, 2020. ESOP compensation expense included in salaries and benefits was $174,000 and $348,000 for the three and six months ended June 30, 2020, respectively, and was $168,000 and $336,000 for the three and six months ended June 30, 2019, respectively.