NOTE

– STOCK-BASED COMPENSATION

Stock-based expense for the years ended

December 31, 2019

and

2018,

was

$299,000

and

$487,000

of which

$188,000

and

$354,000

was charged to stock-based compensation expense and

$111,000

and

$133,000

was charged to stock-based other noninterest expense, respectively.

The Company accounts for forfeitures when they occur by reversing any previously accrued compensation expense on forfeited options in accordance with ASC

718

Compensation – Stock Compensation.

The stock option plan allows for net settlement of vested options. In a net settlement, the Company, at the direction of the optionee, net settles the options by issuing new shares to the optionee with a value, at the current per share trading price, equal to the total in-the-money or intrinsic value of the options less any necessary tax withholdings on the disqualifying disposition of Incentive Stock Options. The optionee is granted newly issued shares and a small amount of cash in lieu of partial shares. In

2019,

shares of common stock were issued in net settlements. There were

net settlements in

2018.

November 17, 2017

the stockholders approved the adoption of the

2017

Equity Incentive Plan (“Incentive Plan”). The Incentive Plan provides for the grant of a maximum of

263,127

shares of the Company’s common stock of which up to

187,948

shares of common stock

may

be granted for stock options and

75,179

shares of common stock

may

be issued as restricted stock to Directors and employees of the Company. Stock options and restricted stock awards under the Incentive Plan vest at

20%

per year beginning on the

first

university of date of grant and have a maximum term of

seven

years.

February 27, 2018

the Company awarded options to purchase

5,000

shares of the Company’s common stock and issued

439

shares of restricted stock. All stock option awards were granted with an exercise price equal to the grant date closing price of the Company’s common stock of

$15.48

per share.

2019,

2,750

stock options were granted and

4,000

shares of restricted stock were issued. The average grant-date fair value of stock option awards granted in

2019

was

$3.72

using the Black Scholes Merton options pricing model with the following weighted average inputs and assumptions:

Grant date stock price and exercise price	$	14.71
Dividend yield		0.86	%
Expected volatility		25.10	%
Risk-free interest rate		1.84	%
Expected life in years		6

Historical data is used to estimate expected volatility and the term of options expected to be outstanding and takes into account that options are

not

transferable. The risk-free interest rate is based on the U.S. Treasury yield curve for the expected term in effect at the date of grant.

A summary of stock option activity during the years ended

December 31, 2019

and

2018

is presented below:

	For the Year Ended December 31, 2019
				Average
			Weighted-	Remaining		Aggregate
			Average	Contractual		Intrinsic
	Shares		Exercise Price	Term (years)		Value

Outstanding, December 31, 2018	164,410	$	14.68	5.8	$	37,316
Granted	2,750		14.71
Exercised	(8,460)		10.39
Forfeited or expired	(12,400)		14.90

Outstanding, December 31, 2019	146,300	$	14.92	5.0	$	53,166

Exercisable, December 31, 2019	57,910	$	14.91	4.9	$	21,131

Information related to stock options during each year is as follows:

	Year Ended December 31,
	2019		2018

Intrinsic value of options exercised	$	42,616	$	89,080
Cash received from option exercises	$	70,035	$	149,228
Tax benefit from option exercises	$	10,708	$	24,866
Total weighted average fair value of options granted	$	10,230	$	20,200

A summary of restricted stock activity during the years ended

December 31, 2019

and

2018

is presented below:

			Weighted		Average
			Average		Remaining
			Grant Date		Contractual
	Shares		Price		Term (years)

	For the Year Ended December 31, 2019

Outstanding, December 31, 2018	49,829		$	14.90	4.0

Granted	4,000		$	14.76
Vested	(11,985	)		14.90
Forfeited or expired	(1,800	)		14.90

Outstanding, December 31, 2019	40,044		$	14.89	3.4

As of

December 31, 2019,

there was

$319,000

and

$581,000

of total unrecognized equity-based expense related to unvested stock options and restricted stock awards granted under the

2017

Equity Incentive Plan, respectively, that is expected to be recognized ratably over the next

years.