Note 19 - Stock-based Compensation

9 Months Ended

Sep. 30, 2024

Notes to Financial Statements

Share-Based Payment Arrangement [Text Block]

(19) 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. Shareholders approved an additional 1 million shares for issuance under the plan at Bancorp’s 2024 Annual Meeting of Shareholders on April 25, 2024. As of September 30, 2024, there were 979,000 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. This model requires the input of assumptions, changes to which can materially impact the fair value estimate. The following assumptions were used in SAR valuations at the grant date in each year:

Assumptions	2024			2023
Dividend yield		2.29	%		2.24	%
Expected volatility		28.43	%		27.20	%
Risk free interest rate		4.16	%		3.84	%
Expected life (in years)		7.1			7.1

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. Dividends associated with RSA grants are deferred until shares are vested. 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 therefore the fair value of such grants incorporates a liquidity discount related to the holding period of 5.8% and 5.2% for 2024 and 2023.

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, therefore the fair value of the RSUs equals market value of underlying shares on the date of grant.

In the first quarters of 2024 and 2023, Bancorp awarded 9,550 and 8,668 RSUs to non-employee directors of Bancorp with a grant date fair value of $500,000 and $550,000, respectively.

Bancorp utilized cash of $203,000 and $175,000 during the first nine months of 2024 and 2023, 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:

	Three months ended September 30, 2024
(in thousands)	Stock Appreciation Rights			Restricted Stock Awards			Restricted Stock Units			Performance Stock Units			Total
Expense	$	72		$	420		$	125		$	305		$	922
Deferred tax benefit		(15	)		(88	)		(27	)		(64	)		(194	)
Total net expense	$	57		$	332		$	98		$	241		$	728

	Three months ended September 30, 2023
(in thousands)	Stock Appreciation Rights			Restricted Stock Awards			Restricted Stock Units			Performance Stock Units			Total
Expense	$	105		$	399		$	126		$	402		$	1,032
Deferred tax benefit		(22	)		(84	)		(26	)		(84	)		(216	)
Total net expense	$	83		$	315		$	100		$	318		$	816

	Nine months ended September 30, 2024
(in thousands)	Stock Appreciation Rights			Restricted Stock Awards			Restricted Stock Units			Performance Stock Units			Total
Expense	$	212		$	1,258		$	374		$	1,028		$	2,872
Deferred tax benefit		(45	)		(264	)		(79	)		(216	)		(604	)
Total net expense	$	167		$	994		$	295		$	812		$	2,268

	Nine months ended September 30, 2023
(in thousands)	Stock Appreciation Rights			Restricted Stock Awards			Restricted Stock Units			Performance Stock Units			Total
Expense	$	310		$	1,204		$	392		$	1,313		$	3,219
Deferred tax benefit		(65	)		(253	)		(82	)		(276	)		(676	)
Total net expense	$	245		$	951		$	310		$	1,037		$	2,543

Detail of unrecognized stock-based compensation expense follows:

	Stock
(in thousands)	Appreciation		Restricted		Restricted		Performance
Year ended	Rights		Stock Awards		Stock Units		Stock Units		Total
Remainder of 2024	$	95	$	432	$	126	$	261	$	914
2025		336		1,528		1		1,043		2,908
2026		286		1,244		—		1,043		2,573
2027		216		915		—		—		1,131
2028		126		485		—		—		611
2029		11		72		—		—		83
Total estimated future expense	$	1,070	$	4,676	$	127	$	2,347	$	8,220

The following table summarizes SARs activity and related information:

												Weighted
						Weighted				Weighted		average
						average		Aggregate		average		remaining
				Exercise		exercise		intrinsic		fair		contractual
(in thousands, except per share and life data)	SARs			price		price		value(1)		value		life (in years)
Outstanding, January 1, 2023		435		$19.37 - $74.92		$	35.60	$	12,784	$	6.02		5.1
Granted		29			60.76 - 60.76		60.76		—		16.81
Exercised		(24	)		19.37 - 19.37		19.37		681		3.58
Forfeited		—			—		—		—		—
Outstanding, December 31, 2023		440		$19.44 - $74.92		$	38.11	$	6,297	$	6.86		4.7
Outstanding, January 1, 2024		440		$19.44 - $74.92		$	38.11	$	6,297	$	6.86		4.7
Granted		42			47.95 - 54.92		49.20		—		13.75
Exercised		(80	)		45.76 - 64.71		24.21		3,027		3.75
Forfeited		—			—		—		—		—
Outstanding, September 30, 2024		402		$22.96 - $74.92		$	42.05	$	8,028	$	8.20		5.1
Vested and exercisable		302		$22.96 - $60.76		$	38.75	$	7,011	$	6.59		4.1
Unvested		100			37.30 - 74.92		51.96		1,017		13.01		3.5
Outstanding, September 30, 2024		402		$22.96 - $74.92		$	42.05	$	8,028	$	8.20		5.1
Vested in the current year		46		$36.65 - $60.76		$	46.89	$	696	$	9.62

(1) – Aggregate 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.

The following table summarizes activity for RSAs granted:

				Grant date
				weighted
(in thousands, except per share data)	RSAs			average cost
Unvested at January 1, 2023		96		$	47.26
Shares awarded		38			63.04
Restrictions lapsed and shares released		(33	)		43.77
Shares cancelled		(3	)		53.38
Unvested at December 31, 2023		98		$	54.23
Unvested at January 1, 2024		98		$	54.23
Shares awarded		46			52.06
Restrictions lapsed and shares released		(32	)		49.30
Shares cancelled		(7	)		53.53
Unvested at September 30, 2024		105		$	54.83

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

	Vesting				Shares
Grant	period		Fair		expected to
year	in years		value		be awarded
2022		3	$	48.48		20,770
2023		3		54.33		13,402
2024		3		41.84		86,136