Note 16 - Stock Based Compensation

12 Months Ended

Dec. 31, 2020

Notes to Financial Statements

Share-based Payment Arrangement [Text Block]

16. 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, 2020, 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, 2020, the maximum number of common shares issuable under the 2014 Plan was 6.5 million shares. During the twelve months ended December 31, 2020, 1.3 million options were granted under the 2014 Plan with a fair value of $1.1 million. During 2020, 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 2020, 2019, and 2018 is as follows:

	2020					2019					2018
Dividend yield(1)				0.0	%				0.0	%				0.0	%
Expected volatility(2)				28.61	%				28.81	%				28.22	%
Risk-free interest rate(3)		0.36%	to	1.22	%		1.42%	to	2.78	%		2.35%	to	2.96	%
Expected life(4) (in years)				6.25					6.25					6.25
Assumed forfeiture rate(5)				5.0	%				4.0	%				4.0	%

⁽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⁾ The risk-free interest rate is based on the five to seven year Treasury bond.

⁽⁴⁾ The expected life reflects an 8 month to 4 year vesting period, the maximum ten year term and review of historical behavior.

⁽⁵⁾ Forfeiture rate is determined through forfeited and expired options as a percentage of options granted over the current three year period.

During 2020, 918,790 options vested as compared to 842,898 options in 2019 and 753,864 options in 2018. Expense is recognized ratably over the period required to vest. At December 31, 2020, the intrinsic value of the 5.9 million options outstanding was $229,000, while the intrinsic value of the 3.4 million exercisable (vested) options was $206,000. During 2020, 333,500 options were forfeited with a weighted average grant date fair value of $643,000.

Information regarding stock based compensation for the years ended December 31, 2020, 2019, and 2018 is set forth below:

	2020		2019		2018
Stock based compensation expense recognized	$	1,918,000	$	2,632,000	$	2,116,000
Number of unvested stock options		2,514,800		2,367,515		1,962,163
Fair value of unvested stock options	$	4,702,676	$	6,108,271	$	5,550,820
Amount remaining to be recognized as expense	$	2,788,559	$	3,574,740	$	3,406,394

The remaining amount of $2.8 million will be recognized ratably as expense through December 2024.

A summary of stock option activity under the plans as of December 31, 2020, 2019, and 2018 is as follows:

	For the Years Ended December 31,
	2020					2019					2018
	Shares			Weighted Average Exercise Price		Shares			Weighted Average Exercise Price		Shares			Weighted Average Exercise Price
Outstanding, beginning of year		4,979,475		$	6.05		3,861,650		$	5.96		3,005,825		$	4.98
Granted		1,270,450			2.98		1,356,500			6.35		1,106,800			8.34
Exercised		(17,000	)		2.43		(53,550	)		4.88		(174,850	)		3.83
Forfeited		(333,500	)		5.34		(185,125	)		6.76		(76,125	)		6.80
Outstanding, end of year		5,899,425		$	5.44		4,979,475		$	6.05		3,861,650		$	5.96
Options exercisable at year-end		3,384,625		$	5.67		2,611,960		$	5.28		1,899,487		$	4.53
Weighted average fair value of options granted during the year				$	0.91				$	2.15				$	2.85

A summary of stock option exercises and related proceeds during the years end December 31,

2020, 2019, and 2018 is as follows:

	For the Years Ended December 31,
	2020		2019		2018
Number of options exercised		17,000		53,550		174,850
Cash received	$	41,305	$	261,143	$	670,413
Intrinsic value	$	10,410	$	72,187	$	814,855
Tax benefit	$	355	$	5,159	$	12,288

The following table summarizes information about options outstanding at December 31, 2020:

			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		1,721,150		6.9	$	2.85		507,200	$	2.53
$3.55	to	$3.95		595,725		3.8		3.60		593,725		3.60
$3.99	to	$7.85		1,756,875		7.2		5.71		1,025,875		5.31
$8.00	to	$9.45		1,825,675		6.7		8.22		1,257,825		8.20
				5,899,425			$	5.44		3,384,625	$	5.67

A roll-forward of non-vested options during the year ended December 31, 2020 is as follows:

	Number of Shares			Weighted- Average Grant Date Fair Value
Nonvested, beginning of year		2,367,515		$	2.58
Granted		1,270,450			0.91
Vested		(918,790	)		2.46
Forfeited		(204,375	)		2.03
Nonvested, end of year		2,514,800		$	1.87