401(k) Savings Plan

The Bank sponsors a savings and profit sharing plan, pursuant to Section 401(k) of the Code, for all eligible employees. Employees may elect to defer up to 80% of their compensation, subject to Code limitations. The Bank will match 50% of the first 6% of the employee's salary deferral up to a maximum of 3% of each employee's compensation. The Plan expense amounted to approximately $87,000 and $88,000 for the years ended December 31, 2019 and 2018, respectively.

Employee Stock Ownership Plan

Effective upon completion of Old MSB's initial public stock offering in 2007, the Bank established the ESOP for all eligible employees who complete a twelve-month period of employment with the Bank, have attained the age of 21 and have completed at least 1,000 hours of service in a plan year. The ESOP used $2.0 million in proceeds from a term loan obtained from Old MSB to purchase 202,342 shares of Old MSB common stock. The term loan principal was payable over 48 equal quarterly installments through December 31, 2018. The interest rate on the term loan was 8.25%.

On July 16, 2015, the Company completed a second-step stock conversion that included the purchase of 150,663 shares by the ESOP and the conversion of 202,342 shares of Old MSB's common stock at a conversion rate of 1.1397 to 230,609 shares of Company common stock bringing the total shares to 381,272. The old term loan was refinanced into a new term loan in the amount of $2.3 million which included additional funds of $1.5 million to cover the cost of the newly purchased shares. The term loan principal is payable over 80 equal quarterly installments through June 30, 2035. The interest rate on the term loan is 3.25%.

Each quarter, the Bank intends to make discretionary contributions to the ESOP, which will be equal to principal and interest payments required on the term loan. The ESOP may further pay down the loan with dividends paid, if any, on the Company common stock owned by the ESOP. Shares purchased with the loan proceeds provide collateral for the term loan and are held in a suspense account for future allocations among participants. Base compensation is the basis for allocation to participants of contributions to the ESOP and shares released from the suspense account, as described by the ESOP, in the year of allocation.

ESOP shares pledged as collateral were initially recorded as unallocated ESOP shares in the consolidated statement of financial condition. On a monthly basis, 910 shares are allocated and compensation expense is recorded equal to the number of allocated shares multiplied by the monthly average market price of the Company's common stock and the allocated shares become outstanding for basic earnings per common share computations. The difference between the fair value of shares and the cost of the shares allocated by the ESOP is recorded as an adjustment to paid-in capital. ESOP compensation expense was approximately $181,000 and $210,000 for the years ended December 31, 2019 and 2018, respectively.

ESOP shares at December 31, 2019 and 2018 are summarized as follows:



	At December 31, 2019		At December 31, 2018
Allocated shares	201,808		190,882
Shares earned and committed to be released	10,926		10,926
Allocated and earned	212,734		201,808
Total ESOP shares	381,272		381,272
Fair value of unallocated shares	$	3,033,684	$	3,203,432

Stock-Based Compensation

After shareholder approval in 2016, the MSB Financial Corp. 2016 Equity Incentive Plan (the “2016 Plan”) became effective. In addition, the Company also has the MSB Financial Corp. 2008 Stock Compensation and Incentive Plan (the “2008 Plan”). No future awards are being granted under the 2008 Plan. The 2016 Plan will terminate on the tenth anniversary of its effective date, after which no awards may be granted. Collectively, the 2008 Plan and the 2016 Plan are referred to as Stock Option Plans. Under the 2016 Plan, the Company may grant options to purchase up to 281,499 shares of Company's common stock and issue up to 112,600 shares of restricted stock. At December 31, 2019, there were 85,985 shares remaining for future option grants and 13,597 shares remaining for future restricted share grants under the plan.

On July 16, 2015, the Company completed a second-step stock conversion that included the conversion of the stock options issued and outstanding under the 2008 Plan at a conversion rate of 1.1397. As a result, the number of options outstanding was increased by the conversion factor and the exercise price per share was converted to $9.4323.

During 2019, there were no options to purchase shares awarded.

During 2018, options to purchase 10,556 shares of common stock at $17.65 per share were awarded and will expire no later than ten years following the grant date. The options granted vest over a five-year service period, with 20% of the awards vesting on each anniversary of the date of grant. The fair value of the options granted, as computed using the Black-Sholes option-pricing model, was determined to be $4.24 per option based upon the following underlying assumptions: a risk-free interest rate, expected option life, expected stock price volatility, and dividend yield of 2.49%, 6.5 years, 16.53%, and 0.00%, respectively.

The risk-free interest rate was based on the U.S. Treasury yield at the option grant date for securities with a term matching the expected life of the options granted. The expected life was calculated using the "simplified" method provided for under Staff Accounting Bulletin No. 110. Expected volatility was calculated based upon the actual price history of the Company's common stock up until the date of the option grants. The dividend yield was not used in the calculation since no dividends were declared since the Company completed the full stock conversion.

A summary of stock options at December 31, 2019 and 2018 was as follows:



	Year Ended December 31, 2019				Year Ended December 31, 2018
Stock Options:	Shares		Weighted- Average Exercise Price		Shares			Weighted- Average Exercise Price
Outstanding at beginning of period	185,003		$	13.56	210,448			$	13.27
Granted	—		—		10,556			17.65
Exercised	—		—		(10,511		)	13.04
Forfeited	—		—		(25,490		)	13.04
Outstanding at end of period	185,003		13.56		185,003			13.56
Nonvested at end of period	79,497		13.88		116,072			13.73
Exercisable at end of period	105,506		13.32		68,931			13.25
Weighted-average fair value of awards granted	$	—			$	4.24

The total amount of compensation cost remaining to be recognized relating to unvested option grants as of December 31, 2019 was $147,000. The weighted-average period over which the expense is expected to be recognized is 1.5 years. At December 31, 2019, the intrinsic value of options exercisable and all options outstanding was approximately $494,000 and $821,000, respectively.

The total amount of compensation cost remaining to be recognized relating to unvested option grants as of December 31, 2018 was $233,000. The weighted-average period over which the expense is expected to be recognized is 2.5 years. At December 31, 2018, the intrinsic value of options exercisable and all options outstanding was approximately $322,000 and $472,000, respectively.

The Company awarded 107,403 shares of restricted stock that vest over a five year period during the year ended December 31, 2016. The fair value of the restricted stock is equal to the fair value of the Company's common stock on the date of grant. For the year ended December 31, 2019, there were 36,963 restricted shares that were unvested and outstanding with a fair value of $13.04. The total amount of compensation cost to be recognized relating to non-vested restricted stock as of December 31, 2019, was $345,000. The weighted-average period over which the expense is expected to be recognized is 1.5 years.

During the year ended December 31, 2019 and 2018, stock-based compensation expense recorded in regard to the options and the restricted stock grants totaled $327,000 and $328,000 as of December 31, 2019 and 2018.