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Note 17 - Stock-based Compensation

12 Months Ended

Dec. 31, 2020

Share-based Payment Arrangement [Text Block]

(17) Stock-Based Compensation

The fair value of all stock-based awards granted, net of estimated forfeitures, is recognized as compensation expense over the respective service period.

At Bancorp's 2015 Annual Meeting of Shareholders, shareholders approved the 2015 Omnibus Equity Compensation Plan and authorized the shares available from the expiring 2005 plan for future awards under the 2015 plan. In 2018 shareholders approved an additional 500,000 shares for issuance under the plan. As of December 31, 2020, there were 432,000 shares available for future awards. The 2005 Stock Incentive Plan expired in April 2015 and SARs granted under this plan expire as late as 2025. The 2015 Stock Incentive Plan has no defined expiration date.

SAR Grants – SARs granted have a vesting schedule of 20% per year and expire ten years after the grant date unless forfeited due to employment termination.

Fair values of SARs are estimated at the date of grant using the Black-Scholes option pricing model, a leading formula for calculating such value. The model requires the input of assumptions, changes to which can materially affect the fair value estimate. The following assumptions were used in SAR valuations at the grant date in each year:

	2020			2019			2018

Dividend yield		2.51	%		2.54	%		2.56	%
Expected volatility		20.87	%		20.39	%		20.17	%
Risk free interest rate		1.25	%		2.52	%		2.96	%
Expected life of SARs (years)		7.1			7.2			7.0

Dividend yield and expected volatility are based on historical information for Bancorp corresponding to the expected life of SARs granted. Expected volatility is the volatility of underlying shares for the expected term calculated on a monthly basis. The risk free interest rate is the implied yield currently available on U.S. Treasury issues with a remaining term equal to the expected life of the awards. The expected life of SARs is based on actual experience of past like-term SARs. Bancorp evaluates historical exercise and post-vesting termination behavior when determining the expected life.

RSA Grants – RSAs granted to officers vest over five years. For all grants prior to 2015, grantees are entitled to dividend payments during the vesting period. Fair value of RSAs is equal to the market value of the shares on the date of grant.

PSU Grants – PSUs vest based upon service and a three-year performance period, which begins January 1 of the first year of the performance period. Because grantees are not entitled to dividend payments during the performance period, the fair value of these PSUs is estimated based upon the market value of the underlying shares on the date of grant, adjusted for non-payment of dividends. Grants require a one year post-vesting holding period and the fair value of such grants incorporates a liquidity discount related to the holding period of 4.4%, 4.1% and 4.3% for 2020, 2019, and 2018, respectively.

RSU Grants – RSUs are only granted to non-employee directors, are time-based and vest 12 months after grant date. Because grantees are entitled to deferred dividend payments at the end of the vesting period, fair value of the RSUs equals market value of underlying shares on the date of grant.

In the first quarters of 2020 and 2019, Bancorp awarded 6,570 and 9,834 RSUs to non-employee directors of Bancorp with a grant date fair value of $270,000 and $330,000, respectively.

Bancorp utilized cash of $224,000 and $272,000 during 2020 and 2019, respectively, for the purchase of shares upon the vesting of RSUs.

Bancorp has recognized stock-based compensation expense for SARs, RSAs, and PSUs within compensation expense, and RSUs for directors within other non-interest expense, as follows:

	Year Ended December 31, 2020
(in thousands)	Stock Appreciation Rights			Restricted Stock Awards			Restricted Stock Units			Performance Stock Units			Total

Expense	$	352		$	1,346		$	270		$	1,294		$	3,262
Deferred tax benefit		(74	)		(283	)		(57	)		(272	)		(686	)
Total net expense	$	278		$	1,063		$	213		$	1,022		$	2,576

	Year Ended December 31, 2019
(in thousands)	Stock Appreciation Rights			Restricted Stock Awards			Restricted Stock Units			Performance Stock Units			Total

Expense	$	345		$	1,185		$	329		$	1,719		$	3,578
Deferred tax benefit		(72	)		(249	)		(69	)		(361	)		(751	)
Total net expense	$	273		$	936		$	260		$	1,358		$	2,827

	Year Ended December 31, 2018
(in thousands)	Stock Appreciation Rights			Restricted Stock Awards			Restricted Stock Units			Performance Stock Units			Total

Expense	$	379		$	1,100		$	248		$	2,300		$	4,027
Deferred tax benefit		(80	)		(231	)		(52	)		(483	)		(846	)
Total net expense	$	299		$	869		$	196		$	1,817		$	3,181

Detail of unrecognized stock-based compensation expense follows:

(in thousands) Year Ended	Stock Appreciation Rights		Restricted Stock Awards		Restricted Stock Units		Performance Stock Units		Total

2021	$	304	$	994	$	1	$	760	$	2,059
2022		249		762		—		490		1,501
2023		174		546		—		—		720
2024		68		292		—		—		360
2025		9		28		—		—		37
Total estimated expense	$	804	$	2,622	$	1	$	1,250	$	4,677

The following table summarizes SARs activity and related information:

(dollars in thousands, except per share and years)	SARs			Exercise price			Weighted average exercise price		Aggregate intrinsic value(1)		Weighted average fair value		Weighted average remaining contractual life (in years)

Outstanding, January 1, 2018		704		$14.02	-	40.00	$	19.51	$	12,923	$	3.47		5.1
Granted		100		35.90	-	39.32		37.75		—		6.07
Exercised		(73	)	14.02	-	19.37		15.32		1,654		3.43
Forfeited		—			—			—		—		—
Outstanding, December 31, 2018		731		$14.02	-	40.00	$	22.42	$	8,422	$	3.83		5.2

Outstanding, January 1, 2019		731		$14.02	-	40.00	$	22.42	$	8,422	$	3.83		5.2
Granted		53		36.65	-	38.18		37.01		213		6.24
Exercised		(143	)	14.02	-	22.96		15.99		3,025		3.47
Forfeited		—			—			—		—		—
Outstanding, December 31, 2019		641		$14.02	-	40.00	$	25.06	$	10,250	$	4.10		5.3

Outstanding, January 1, 2020		641		$14.02	-	40.00	$	25.06	$	10,250	$	4.10		5.3
Granted		48		37.30	-	37.30		37.30		154		5.80
Exercised		(96	)	14.02	-	25.76		16.33		2,401		2.88
Forfeited		—			—			—		—		—
Outstanding, December 31, 2020		593		$15.24	-	40.00	$	27.47	$	7,706	$	4.44		5.1

Vested and exercisable		412		$15.24	-	40.00	$	23.44	$	7,008	$	3.83		4.0
Unvested		181		25.76	-	40.00		36.63		698		5.83		7.8
Outstanding, December 31, 2020		593		$15.24	-	40.00	$	27.47	$	7,706	$	4.44		5.1

Vested in the current year		68		$22.96	-	40.00	$	32.11	$	572	$	5.10

(1) - Intrinsic value for SARs is defined as the amount by which the current market price of the underlying stock exceeds the exercise or grant price.

SARs outstanding by expiration year follows:

(in thousands, except per share data)
Expiration	SARs Outstanding		SARs Exercisable		Weighted Average Exercise Price
2021		8		8		15.84
2022		42		42		15.26
2023		80		80		15.26
2024		73		73		19.37
2025		63		63		23.00
2026		79		63		25.84
2027		46		29		40.00
2028		100		42		37.75
2029		53		12		37.01
2030		49		—		37.30
		593		412	$	27.47

The following table summarizes activity for RSAs granted to officers:

				Weighted
				average cost
(in thousands, except per share data)	RSAs			at grant date

Unvested at January 1, 2018		119		$	27.62
Shares awarded		40			35.89
Restrictions lapsed and shares vested		(44	)		23.62
Shares forfeited		(5	)		31.35
Unvested at December 31, 2018		110		$	32.09

Unvested at January 1, 2019		110		$	32.09
Shares awarded		40			34.88
Restrictions lapsed and shares vested		(40	)		28.74
Shares forfeited		(2	)		35.36
Unvested at December 31, 2019		108		$	34.31

Unvested at January 1, 2020		108		$	34.31
Shares awarded		36			39.30
Restrictions lapsed and shares vested		(41	)		32.38
Shares forfeited		(4	)		36.63
Unvested at December 31, 2020		99		$	36.85

Shares expected to be awarded for PSUs granted to executive officers of Bancorp, the three-year performance period, which began January 1 of the award year, are as follows:

Grant Year	Vesting Period in Years	Fair Value		Expected Shares to be Awarded
2018	3		31.54		50,352
2019	3		32.03		36,127
2020	3		32.27		45,577

All Bancorp equity compensation plans have been approved by shareholders. The following table provides detail of the number of shares to be issued upon exercise of outstanding stock-based awards and remaining shares available for future issuance under Bancorp’s equity compensation plan as of December 31, 2020.

Number of

Shares

shares to be

Weighted

available for

issued upon

average

future

Plan category (in thousands)

exercising/vesting

exercise price

issuance (a)

Equity compensation plans approved by security holders:

Stock Appreciation Rights

(b)

432

Restricted Stock Awards

N/A

(a)

Restricted Stock Units

N/A

(a)

Performance Stock Units

(c)

N/A

(a)

Total shares

106

432

(a)	Under the 2015* Omnibus Equity Compensation Plan, shares of stock are authorized for issuance as incentive and non-qualified stock options, SARs, RSAs, and RSUs.*

(b)

At December 31, 2020, approximately 593,000 SARs were outstanding at a weighted average grant price of $27.47. The number of shares to be issued upon exercise will be determined based on the difference between the grant price and the market price at the date of exercise.

(c)

The number of shares to be issued is dependent upon Bancorp achieving certain predefined performance targets and ranges from zero shares to approximately 199,000 shares. As of December 31, 2020, shares expected to be awarded total approximately 132,000.