Note 3 - Stock-based Compensation and Shareholders' Equity

3 Months Ended

Mar. 31, 2023

Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]

Stock-Based Compensation and Shareholders Equity

3. STOCK-BASED COMPENSATION AND SHAREHOLDERS’ EQUITY

QNB sponsors stock-based compensation plans, administered by a Board committee (the “Committee”), under which both qualified and non-qualified stock options may be granted periodically to certain employees. Compensation cost has been measured using the fair value of an award on the grant date and is recognized over the service period, which is usually the vesting period.

Stock-based compensation expense was $20,000 and $22,000 for the three months ended March 31, 2023 and 2022, respectively. At March 31, 2023, there was approximately $236,000 of unrecognized compensation cost related to unvested share-based compensation award grants that is expected to be recognized over the next 59 months.

Options are granted to certain employees at prices equal to the market value of the stock on the date the options are granted. The 2015 Plan authorized the issuance of 300,000 shares. The time period during which any option is exercisable under the 2015 Plan is determined by the Committee but shall not commence before the expiration of six months after the date of grant or continue beyond the expiration of five years after the date the option is awarded. The granted options vest after a three-year period. The 2015 Plan was amended, effective January 1 2023, to increase the maximum term of any options granted under the plan from five years to ten years, and to also require that awards granted under the Plan will vest 20% each consecutive year commencing on the first anniversary date of the award unless otherwise specified in an award agreement. As of March 31, 2023, there were 212,550 options granted, 120,875 options forfeited, 20,825 options exercised, and 121,550 options outstanding under this Plan. The 2015 Plan expires on February 24, 2025.

The following assumptions were used in the option pricing model in determining the fair value of options granted during the period:

For the Three Months Ended March 31,	2023			2022
Risk free interest rate		3.64	%		1.25	%
Dividend yield		4.80	%		3.64	%
Volatility		20.36	%		22.68	%
Expected life (years)		8.35			4.05

The risk-free interest rate was selected based upon yields of U.S. Treasury securities with a term approximating the expected life of the option being valued. Historical information was the basis for the selection of the expected dividend yield, expected volatility and expected lives of the options.

The fair market value of options granted in the three months ended March 31, 2023 and 2022 was $4.11 and $5.20, respectively.

Stock option activity during the three months ended March 31, 2023 and 2022 is as follows:

	Number of options			Weighted average exercise price		Weighted average remaining contractual term (in years)		Aggregate intrinsic value
Outstanding at December 31, 2022		109,150		$	37.65
Granted		35,000			29.51
Exercised		—			—
Forfeited		(22,600	)		43.15
Outstanding at March 31, 2023		121,550		$	34.29		4.59	$	—
Exercisable at March 31, 2023		41,375		$	37.37		1.35	$	—

	Number of options			Weighted average exercise price		Weighted average remaining contractual term (in years)		Aggregate intrinsic value
Outstanding at December 31, 2021		113,950		$	37.58
Granted		29,350			37.26
Exercised		—			—
Forfeited		(21,250	)		37.69
Outstanding at March 31, 2022		122,050		$	37.49		3.01	$	117
Exercisable at March 31, 2022		44,500		$	40.86		1.39	$	—