Note 10. Stock Based Compensation

The Company’s stockholders approved the 2017 Equity Compensation Plan (“the Plan”) on May 23, 2017. The Plan eliminates all remaining issuable shares under previous plans and is the only outstanding plan as of March 31, 2019. The maximum number of shares of common stock or equivalents which may be issued under the Plan, is 750,000. Grants under the Plan can be in the form of stock options (qualified or non-qualified), restricted shares, restricted share units or performance units. Shares available for grant and issuance under the Plan as of March 31, 2019 are approximately 535,300. The Company intends to issue all shares under the Plan in the form of newly issued shares.

Restricted stock, options and restricted stock units typically have a three-year vesting period starting one year after the date of grant with one-third vesting each year. The options generally expire ten years from the date of grant. Restricted stock granted to new employees and board members may be granted with shorter vesting periods. Grants of performance units typically have a cliff vesting after three years or upon a change of control. All issuances are subject to forfeiture if the recipient leaves or is terminated prior to the awards vesting. Restricted shares have the same dividend and voting rights as common stock, while options, performance units and restricted stock units do not.

All awards are issued at fair value of the underlying shares at the grant date. The Company expenses the cost of the awards, which is determined to be the fair market value of the awards at the date of grant, ratably over the vesting period. Forfeiture rates are not estimated but are handled on a case-by-case basis. Stock-based compensation expense for the three months ended March 31, 2019 and March 31, 2018 was $0.8 million and $0.6 million, respectively.

Activity under the Company’s options as of and for the three months ended March 31, 2019 was as follows:

					Weighted-
					Average
			Weighted-		Remaining
	Number of		Average		Contractual
	Stock		Exercise		Term	Aggregate
	Options		Price		(in years)	Intrinsic Value
Outstanding at December 31, 2018	108,463		$	8.35
Granted	-			-
Exercised	(21,991	)		7.84
Forfeited/cancelled/expired	-			-
Outstanding at March 31, 2019	86,472			8.48	2.9	$	970,370

Exercisable at March 31, 2019	86,472		$	8.48	2.9	$	970,370

The aggregate intrinsic value of outstanding and exercisable options above represents the total pre-tax intrinsic value (the difference between the Company’s closing stock price on March 31, 2019 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on March 31, 2019. This amount changes based on the fair market value of the Company’s stock.

Activity under the Company’s restricted shares for the three months ended March 31, 2019 was as follows:

			Weighted-
			Average
	Nonvested		Grant Date
	Shares		Fair Value
Nonvested at December 31, 2018	68,428		$	23.04
Granted	42,483			19.88
Vested	(46,352	)		21.98
Forfeited/cancelled/expired	-			-
Nonvested March 31, 2019	64,559		$	21.77

As of March 31, 2019, there was approximately $1,340,000 of total unrecognized compensation cost related to nonvested restricted shares granted. The cost is expected to be recognized over a weighted average period of 1.5 years. A total of 42,483 restricted shares were granted during the quarter ended March 31, 2019.

A summary of the status of unearned performance unit awards and the change during the period is presented in the table below:

				Weighted
				Average Grant
	Units		Units	Date Fair
	(expected)		(maximum)	Value
Unearned at December 31, 2018	86,009			$	22.06
Awarded	35,636				20.79
Change in estimate	11,005				17.02
Vested	(52,508	)			21.26
Unearned at March 31, 2019	80,142		120,213	$	23.98

At March 31, 2019, the specific number of shares related to performance units that were expected to vest was 80,142, determined by actual performance in consideration of the established range of the performance targets, which is consistent with the level of expense currently being recognized over the vesting period. Should this expectation change, additional compensation expense could be recorded in future periods or previously recognized expense could be reversed. At March 31, 2019 the maximum amount of performance units that ultimately could vest if performance targets were exceeded is 120,213. A total of 25,991 shares were netted from the vested shares to satisfy tax obligations. The net issuance of performance units issued during the three months ended March 31, 2019 were 26,517 shares.

At March 31, 2019, compensation cost of approximately $1.4 million related to non-vested performance units not yet recognized is expected to be recognized over a weighted-average period of 1.8 years. A total of 35,636 performance units were awarded during the three months ended March 31, 2019.

A summary of the status of unearned restricted stock units and the change during the period is presented in the table below:

			Weighted
			Average Grant
	Units		Date Fair
	(expected)		Value
Unearned at December 31, 2018	29,423		$	31.35
Awarded	53,454			20.79
Forfeited	-			-
Vested	(9,808	)		21.28
Unearned at March 31, 2019	73,069		$	23.62

At March 31, 2019, the specific number of shares related to restricted stock units that were expected to vest was approximately 73,069. Any forfeitures would result in previously recognized expense being reversed. A portion of the shares that vest will be netted out to satisfy the tax obligations of the recipient. During the three months ended March 31, 2019 a total of 4,904 shares were netted out to satisfy tax obligations, resulting in net issuance of 4,904 shares.

At March 31, 2019, compensation cost of approximately $1.7 million related to non-vested restricted stock units, not yet recognized, is expected to be recognized over a weighted-average period of 1.8 years. A total of 53,454 restricted stock units were awarded during the quarter ended March 31, 2019.