STOCK BASED COMPENSATION

12 Months Ended

Dec. 31, 2019

Share-based Payment Arrangement [Abstract]

STOCK BASED COMPENSATION

The Company's stock based plans include the Second Amended and Restated 2005 Employee Stock Plan (the "2005 Plan") and the 2018 Non-Employee Director Stock Plan (the "2018 Plan"), which have been approved by the Company’s Board of Directors and shareholders. The 2010 Non-Employee Director Stock Plan (the "2010 Plan") expired on May 17, 2018, and as such the Company may only award shares from the 2005 Plan or the 2018 Plan. These shares may be awarded as either stock option awards or restricted stock awards from its pool of authorized but unissued shares.

The following table presents the amount of cumulatively granted stock option awards and restricted stock awards, net of forfeitures and expirations, granted through December 31, 2019:

	Authorized Awards	Cumulatively Granted, Net of Forfeitures and Expirations		Total	Authorized but Unissued
		Stock Option  Awards	Restricted Stock  Awards
2005 Plan	1,650,000	387,258	810,381	1,197,639	452,361
2010 Plan	314,600	46,500	93,245	139,745	—	(1)
2018 Plan	300,000	—	12,500	12,500	287,500	(1)

(1) The Company may award up to a total of 300,000 shares from the 2018 Plan, inclusive of 174,855 shares that were Authorized but Unissued in the 2010 Plan, and were transferred from the 2010 Plan to the 2018 Plan. Due to this transfer, there are no available shares remaining to be issued from the 2010 Plan.

The following table presents the pre-tax expense associated with stock option and restricted stock awards and the related tax benefits recognized for the periods presented:

	Years Ended December 31
	2019		2018		2017
	(Dollars in thousands)
Stock based compensation expense
Restricted stock awards (1)	$	3,679	$	3,299	$	2,730
Directors’ fee expense (2)
Stock options	23		66		76
Restricted stock awards	701		860		527
Total stock based award expense	$	4,403	$	4,225	$	3,333
Related tax benefits recognized in earnings	$	1,238	$	1,188	$	1,362

(1) Inclusive of compensation expense associated with time-vested and performance-based restricted stock awards.

(2) Expense related to awards issued to directors is recognized as directors’ fees within other noninterest expense.

The Company has standard form agreements used for stock option and restricted stock awards. The standard form agreements used for the Chief Executive Officer and all other Executive Officers have previously been disclosed in Securities and Exchange Commission filings and generally provide that: (1) any unvested options or unvested restricted stock vest upon a Change of Control; and, that (2) any stock options which vest pursuant to a Change of Control, which is an event described in Section 280G of the Internal Revenue Code of 1986, will be cashed out at the difference between the acquisition price and the exercise price of the stock option.

Stock Options

The fair value of each stock option grant is estimated on the date of the grant using the Black-Scholes option-pricing model with the following assumptions used for grants under the identified plans:

• Expected volatility is based on the standard deviation of the historical volatility of the weekly adjusted closing price of the Company’s shares for a period equivalent to the expected life of the option.

• Expected life represents the period of time that the option is expected to be outstanding, taking into account the contractual term, historical exercise/forfeiture behavior, and the vesting period, if any.

• Expected dividend yield is an annualized rate calculated using the most recent dividend payment at time of grant and the Company’s average trailing twelve-month daily closing stock price.

• The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant for a period equivalent to the expected life of the option.

• Effective January 1, 2017, the Company adopted new accounting guidance and elected to no longer estimate forfeitures on stock compensation and instead recognize forfeitures when they occur. The election required a cumulative effect adjustment to retained earnings which did not materially impact the Company's consolidated financial position.

During the year ended December 31, 2019, there were no awards granted by the Company of nonqualified options to purchase shares of common stock. The following table presents the awards granted by the Company of nonqualified options to purchase shares of common stock for the periods presented:

	Years Ended December 31
	2018			2017
Date of grant	4/3/2018			11/7/2017
Plan	2010			2010
Options granted	5,000			5,000
Vesting period (beginning on the grant date)	21 months			14 months
Expiration date	4/3/2028			11/7/2027
Expected volatility	21.15		%	20.80		%
Expected life (years)	5.5			5.5
Expected dividend yield	1.94		%	1.87		%
Risk free interest rate	2.62		%	2.02		%
Fair value per option	$	13.46		$	12.43

 

Under all of the Company’s stock based plans, the option exercise price is based upon the average of the high and low trading value of the stock on the date of grant. Stock option awards granted to date under all plans expire at various dates through 2028.

The following table presents relevant information relating to the Company’s stock options for the periods presented:

	Years Ended December 31
	2019		2018		2017
	(Dollars in thousands, except per share data)
Fair value of stock options vested based on grant date fair value	$	21	$	85	$	72
Intrinsic value of stock options exercised	$	883	$	1,525	$	1,082
Cash received from stock option exercises	$	396	$	1,024	$	918
Tax benefit realized on stock option exercises	$	248	$	429	$	442
Weighted average grant date fair value of options granted (per share)	n/a		$	13.46	$	12.43

The following table presents a summary of stock option award activity for the year ended December 31, 2019.

	Outstanding								Nonvested
	Stock Option Awards			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (years)	Aggregate Intrinsic Value (1)		Stock Option Awards		Weighted Average Grant Date Fair Value
	(Dollars in thousands, except per share data)
Balance at January 1, 2019	54,500			$	37.28				3,332		$	12.94
Granted	—			—					—		—
Exercised	(16,000	)		24.76					n/a		n/a
Vested	n/a			n/a					(1,666	)	12.43
Forfeited	—			—					—		—
Expired	—			—					—		—
Balance at December 31, 2019	38,500		(2)	$	42.49	4.00 years	$	1,584	1,666		$	13.46
Options outstanding and expected to vest at December 31, 2019	38,500		(3)	$	42.49	4.00 years	$	1,584
Options exercisable at December 31, 2019	36,834		(4)	$	41.21	3.81 years	$	1,563
Unrecognized compensation cost													$	—
Weighted average remaining recognition period (years)													0.00

 

(1) The aggregate intrinsic value represents the total pre-tax intrinsic value, based on the average of the high price and low price at which the Company’s common stock traded on December 31, 2019 of $83.64, which would have been received by in-the-money option holders had they all exercised their options as of that date.

(2)Inclusive of 22,500 stock options outstanding to Directors.

(3) Inclusive of 22,500 vested stock options and expected to vest to Directors.

(4) Inclusive of 20,834 vested stock options outstanding to Directors.

Restricted Stock

The Company grants both time-vested restricted stock awards as well as performance-based restricted stock awards. During the years ended December 31, 2019, 2018, and 2017 the Company made the following restricted stock award grants:

	Shares Granted	Plan	Fair Value (1)		Vesting Period
Time-vested
2019
2/21/2019	43,250	2005	$	83.87	Ratably over 5 years from grant date
3/15/2019	600	2005	$	79.55	Ratably over 5 years from grant date
4/1/2019	1,090	2005	$	82.62	Ratably over 3 years from grant date
5/21/2019	6,500	2018	$	77.08	Immediately upon grant date
2018
2/15/2018	39,950	2005	$	71.75	Ratably over 5 years from grant date
2/27/2018	1,150	2005	$	72.60	Ratably over 5 years from grant date
5/15/2018	530	2005	$	74.00	Ratably over 5 years from grant date
5/22/2018	6,000	2018	$	76.58	Immediately upon grant date
11/15/2018	560	2005	$	77.78	Ratably over 5 years from grant date
2017
2/13/2017	1,200	2005	$	62.53	Ratably over 5 years from grant date
2/16/2017	34,150	2005	$	63.10	Ratably over 5 years from grant date
3/31/2017	500	2005	$	65.63	Ratably over 5 years from grant date
4/3/2017	1,500	2005	$	64.14	Once on November 30, 2017 (2)
5/15/2017	1,000	2005	$	64.03	Ratably over 5 years from grant date
5/23/2017	7,000	2010	$	61.95	At the end of 5 years from grant date (3)
6/15/2017	950	2005	$	66.18	Ratably over 5 years from grant date
Performance-based
2/21/2019	15,900	2005	$	83.87	The earlier of: the date on which it is determined if the performance goal has been achieved; or, March 31, 2022.
2/15/2018	16,300	2005	$	71.75	The earlier of: the date on which it is determined if the performance goal has been achieved; or, March 31, 2021.
2/16/2017	14,400	2005	$	63.10	The earlier of: the date on which it is determined if the performance goal has been achieved; or, March 31, 2020.

 

(1) The fair value of the restricted stock awards are based upon the average of the high and low prices at which the Company’s common stock traded on the date of grant. The holders of time-vested restricted stock awards participate fully in the rewards of stock ownership of the Company, including voting and dividend rights. The holders of performance-based restricted stock awards do not participate in the rewards of stock ownership of the Company until vested. The holders of all restricted stock awards are not required to pay any consideration to the Company for the awards.

(2) This restricted stock grant fully vested upon an employee's termination, on November 30, 2017.

(3) These restricted stock grants will vest at the end of a five year period, or earlier if the director ceases to be a director for any reason other than cause, such as, for example, by retirement.

The following table presents the fair value of restricted stock awards vesting during the periods presented:

	Years Ended December 31
	2019		2018		2017
	(Dollars in thousands)
Fair value of restricted stock awards upon vesting	$	6,005	$	6,277	$	5,717

The following table presents a summary of restricted stock award activity for the year ended December 31, 2019:

	Outstanding Restricted Stock Awards			Weighted Average Grant Price ($)
	(Dollars in thousands, except per share data)
Balance at January 1, 2019	202,106			$	55.62
Granted	67,340			83.16
Vested/released	(74,272	)		49.56
Forfeited	(1,390	)		64.76
Balance at December 31, 2019	193,784		(1)	$	67.48
Unrecognized compensation cost (inclusive of directors’ fees)						$	8,098
Weighted average remaining recognition period (years)						2.99

 

(1)

Inclusive of 17,925 restricted stock awards outstanding to Directors.