Note 16 - Stock Based Compensation

12 Months Ended

Dec. 31, 2019

Notes to Financial Statements

Share-based Payment Arrangement [Text Block]

1

6

. Stock Based Compensation

The Company has a Stock Option and Restricted Stock Plan (“the

2005

Plan”), under which the Company granted options, restricted stock or stock appreciation rights to the Company’s employees, directors, and certain consultants. The

2005

Plan became effective on

November 14, 1995,

and was amended and approved at the Company’s

2005

annual meeting of shareholders. Under the terms of the

2005

Plan,

1.5

million shares of common stock, plus an annual increase equal to the number of shares needed to restore the maximum number of shares that could be available for grant under the

2005

Plan to

1.5

million shares, were available for such grants. As of

December 31, 2019,

the only grants under the

2005

Plan were option grants. The

2005

Plan provided that the exercise price of each option granted equaled the market price of the Company’s stock on the date of the grant. Options granted pursuant to the

2005

Plan vest within

one

to

four

years and have a maximum term of

10

years. The

2005

Plan terminated on

November 14, 2015

in accordance with the terms and conditions specified in the Plan agreement.

On

April 29, 2014

the Company’s shareholders approved the

2014

Republic First Bancorp, Inc. Equity Incentive Plan (the

“2014

Plan”), under which the Company

may

grant options, restricted stock, stock units, or stock appreciation rights to the Company’s employees, directors, independent contractors, and consultants. Under the terms of the

2014

Plan,

2.6

million shares of common stock, plus an annual adjustment to be

no

less than

10%

of the outstanding shares or such lower number as the Board of Directors

may

determine, are available for such grants. At

December 31, 2019,

the maximum number of common shares issuable under the

2014

Plan was

6.4

million shares. During the

twelve

months ended

December 31, 2019,

1.4

million options were granted under the

2014

Plan with a fair value of

$2,799,976.

During

2019,

options to purchase the Company’s common stock were granted to certain employees and directors. The exercise price for the options granted was equal to the closing price of the Company’s common stock on the date of grant. The options issued are subject to a

one

to

four

year vesting period and expire after

ten

years.

The Company utilized the Black-Scholes option pricing model to calculate the estimated fair value of each stock option granted on the date of the grant. A summary of the assumptions used in the Black-Scholes option pricing model for

2019,

2018,

and

2017

is as follows:

	201 9			201 8			2017
Dividend yield (1)	0.0%			0.0%			0.0%
Expected volatility	28.81% (2)			28.22% (2)			44.00%	to	50.09% (3)
Risk-free interest rate (4)	1.42%	to	2.78%	2.35%	to	2.96%	1.89%	to	2.30%
Expected life (in years) (5)	6.25			6.25			5.5	to	7.0
Assumed forfeiture rate (6)	4.0%			4.0%			6.0%

(

1

)

A dividend yield of

0.0%

is utilized because cash dividends have never been paid.

(

2

)

The expected volatility was based on the historical volatility of the Company’s common stock price as adjusted for certain historical periods of extraordinary volatility in order to estimate expected volatility.

(

3

)

Expected volatility is based on Bloomberg’s

five

and

one

-half to

seven

year volatility calculation for “FRBK” stock.

(

4

)

The risk-free interest rate is based on the

five

to

seven

year Treasury bond.

(

5

)

The expected life reflects a

1

to

4

year vesting period, the maximum

ten

year term and review of historical behavior.

(

6

)

Forfeiture rate is determined through forfeited and expired options as a percentage of options granted over the current

three

year period.

During

2019,

842,898

options vested as compared to

753,864

options in

2018

and

529,624

options in

2017.

 Expense is recognized ratably over the period required to vest. At

December 31, 2019,

the intrinsic value of the

4,979,475

options outstanding was

$1.3

million, while the intrinsic value of the

2,611,960

exercisable (vested) options was

$1.3

million. During

2019,

185,125

options were forfeited with a weighted average grant date fair value of

$475,000.

Information regarding stock based compensation for the years ended

December 31, 2019,

2018,

and

2017

is set forth below:

	201 9		201 8		201 7
Stock based compensation expense recognized	$	2,632,000	$	2,116,000	$	1,842,000
Number of unvested stock options		2,367,515		1,962,163		1,659,102
Fair value of unvested stock options	$	6,108,271	$	5,550,820	$	4,587,565
Amount remaining to be recognized as expense	$	3,574,740	$	3,406,394	$	2,508,314

The remaining amount of

$3.6

million will be recognized ratably as expense through

October 2023.

A summary of stock option activity under the Plan as of

December 31, 2019,

2018,

and

2017

is as follows:

	For the Years Ended December 31,
	201 9					201 8					201 7
	Shares			Weighted Average Exercise Price		Shares			Weighted Average Exercise Price		Shares			Weighted Average Exercise Price
Outstanding, beginning of year		3,861,650		$	5.96		3,005,825		$	4.98		2,332,900		$	3.70
Granted		1,356,500			6.35		1,106,800			8.34		916,000			8.03
Exercised		(53,550	)		4.88		(174,850	)		3.83		(197,975	)		3.26
Forfeited		(185,125	)		6.76		(76,125	)		6.80		(45,100	)		7.95
Outstanding, end of year		4,979,475		$	6.05		3,861,650		$	5.96		3,005,825		$	4.98
Options exercisable at year-end		2,611,960		$	5.28		1,899,487		$	4.53		1,346,723		$	3.55
Weighted average fair value of options granted during the year				$	2.15				$	2.85				$	3.75

A summary of stock option exercises and related proceeds during the years end

December 31, 2019,

2018,

and

2017

is as follows:

	For the Years Ended December 31,
	201 9		201 8		201 7
Number of options exercised		53,550		174,850		197,975
Cash received	$	261,143	$	670,413	$	646,263
Intrinsic value	$	72,187	$	814,855	$	991,957
Tax benefit	$	5,159	$	12,288	$	81,589

The following table summarizes information about options outstanding at

December 31, 2019:

	Options Outstanding						Options Exercisable
Range of Exercise Prices	Number Outstanding		Weighted- Average Remaining Contractual Life		Weighted- Average Exercise Price		Shares		Weighted- Average Exercise Price
$1.55 to $3.53		516,200		2.5	$	2.51		516,200	$	2.51
$3.55 to $3.95		650,475		4.5		3.62		648,475		3.62
$3.99 to $7.85		1,928,125		5.7		5.69		423,874		4.17
$8.00 to $9.45		1,884,675		8.2		8.22		1,023,411		8.19
		4,979,475			$	6.05		2,611,960	$	5.28

A roll-forward of non-vested options during the year ended

December 31, 2019

is as follows:

	Number of Shares			Weighted- Average Grant Date Fair Value
Nonvested, beginning of year		1,962,163		$	2.83
Granted		1,356,500			2.15
Vested		(842,898	)		2.83
Forfeited		(108,250	)		2.83
Nonvested, end of year		2,367,515		$	2.58