17.STOCK PLANS AND STOCK BASED COMPENSATION

In January 2015, the Company’s Board of Directors adopted the Republic Bancorp, Inc. 2015 Stock Incentive Plan (the “2015 Plan”), which became effective April 23, 2015 when the Company’s shareholders approved the 2015 Plan. The 2015 Plan replaced the Company’s 2005 Stock Incentive Plan, which expired on March 15, 2015.

The number of authorized shares under the 2015 Plan is fixed at 3,000,000, with such number subject to adjustment in the event of certain events, such as stock dividends, stock splits, or the like. There is a minimum three-year vesting period for awards granted to employees under the 2015 Plan that vest based solely on the completion of a specified period of service, with options generally exercisable five to six years after the issue date. Stock options generally must be exercised within one year from the date the options become exercisable and have an exercise price that is at least equal to the fair market value of the Company’s stock on their grant date.

All shares issued under the above-mentioned plans were from authorized and reserved unissued shares. The Company has a sufficient number of authorized and reserved unissued shares to satisfy all anticipated option exercises. There are no Class B stock options outstanding or available for exercise under the Company’s plans.

Stock Options

The fair value of each stock option granted is estimated on the date of grant using the Black-Scholes based stock option valuation model. This model requires the input of subjective assumptions that will usually have a significant impact on the fair value estimate. Expected volatilities are based on historical volatility of Republic’s stock and other factors. Expected dividends are based on dividend trends and the market price of Republic’s stock price at grant. Republic uses historical data to estimate option exercises and employee terminations within the valuation model. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve at the time of grant.

All share-based payments to employees, including grants of employee stock options, are recognized as compensation expense over the service period (generally the vesting period) in the consolidated financial statements based on their fair values.

The fair value of stock options granted was determined using the following weighted average assumptions as of grant date:


Years Ended December 31,	2017			2016			2015

Risk-free interest rate		2.07	%		1.43	%		1.54	%
Expected dividend yield		2.41	%		3.16	%		3.06	%
Expected stock price volatility		20.36	%		20.17	%		22.66	%
Expected life of options (in years)		5			5			5
Estimated fair value per share	$	5.46		$	3.27		$	3.58

The following table summarizes stock option activity from January 1, 2016 through December 31, 2017:


				Weighted
		Weighted		Average
	Options	Average		Remaining	Aggregate
	Class A	Exercise		Contractual	Intrinsic
	Shares	Price		Term	Value

Outstanding, January 1, 2016	323,400	$	24.40
Granted	5,000		26.43
Exercised	(4,000)		20.12
Forfeited or expired	(11,800)		24.47
Outstanding, December 31, 2016	312,600	$	24.49	3.77	$	4,705,807

Outstanding, January 1, 2017	312,600	$	24.49
Granted	4,500		35.54
Exercised	(3,500)		19.63
Forfeited or expired	(18,600)		24.99
Outstanding, December 31, 2017	295,000	$	24.68	2.86	$	3,935,010

Fully vested and unvested	295,000	$	24.68	2.86	$	3,935,010
Exercisable (vested) at December 31, 2017	—	$	—	—	$	—

Information related to the stock options during each year follows:


Years Ended December 31, (in thousands, except per share data)	2017		2016		2015

Intrinsic value of options exercised	$	71	$	18	$	581
Cash received from options exercised, net of shares redeemed		68		80		1,136
Weighted-average fair value per share of options granted		5.46		3.27		3.58

Loan balances of non-executive officer employees that were originated solely to fund stock option exercises were as follows:


December 31, (in thousands)	2017		2016

Outstanding loans	$	136	$	371

Restricted Stock Awards

Restricted stock awards generally vest five to six years after issue, with accelerated vesting due to “change in control” or “death or disability of a participant” as defined and outlined in the 2015 Plan.

The following table summarizes restricted stock activity from January 1, 2016 through December 31, 2017:


	Restricted
	Stock Awards	Weighted-Average
	Class A Shares	Grant Date Fair Value
Outstanding, January 1, 2016	79,000	$	20.02
Granted	—		—
Forfeited	(2,000)		19.85
Earned and issued	—		—
Outstanding, December 31, 2016	77,000	$	20.02

Outstanding, January 1, 2017	77,000	$	20.02
Granted	7,413		35.77
Forfeited	(750)		19.85
Earned and issued	(42,053)		21.66
Outstanding, December 31, 2017	41,610	$	21.18

Unvested	41,610	$	21.18

The fair value of the restricted stock awards is based on the closing stock price on the date of grant with the associated expense amortized to compensation expense over the vesting period, generally five to six years.

Performance Stock Units

The Company first granted performance stock units (“PSUs”) under the 2015 Plan in January 2016. Shares of stock underlying the PSUs may be earned over a four-year performance period commencing on January 1, 2017 and ending on December 31, 2020 as follows:

If the Company achieves a Return on Average Assets (“ROAA”), as defined in the award agreement, of 1.25% for a calendar year in the performance period, then between March 1st and March 15th of the following year, provided that the recipient is still employed in good standing on the payment date, the Company will issue shares of fully vested stock to the participant equal to 50% of the number of the PSUs initially granted to the participant; and

If the ROAA of 1.25% is met again at the end of another calendar year during the remaining term of the performance period, the Company will similarly issue fully vested stock in an amount equal to the remaining 50% of the initial PSUs granted to the participant.

The following table summarizes PSU activity from January 1, 2016 through December 31, 2017:


	Performance
	Stock Units	Weighted-Average
	Class A Shares	Grant Date Fair Value
Outstanding, January 1, 2016	—	$	—
Granted	55,000		23.13
Forfeited	—		—
Earned and issued	—		—
Outstanding, December 31, 2016	55,000	$	23.13

Outstanding, January 1, 2017	55,000	$	23.13
Granted	—		—
Forfeited	(6,500)		23.48
Earned and issued	—		—
Outstanding, December 31, 2017	48,500	$	23.08

Unvested	48,500	$	23.08

Expense Related to Stock Incentive Plans

The Company recorded expense related to stock incentive plans for the years ended December 31, 2017, 2016 and 2015 as follows:



Years Ended December 31, (in thousands)	2017		2016		2015

Stock option expense	$	227	$	248	$	169
Restricted stock award expense		424		258		253
Performance stock unit expense		491		524		—
Total expense	$	1,142	$	1,030	$	422

Unrecognized expenses related to unvested awards (net of estimated forfeitures) under stock incentive plans are estimated as follows:


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

2018	$	243	$	183	$	215	$	641
2019		139		—		—		139
2020		35		—		—		35
2021		5		—		—		5
2022		—		—		—		—
2023		—		—		—		—
Total	$	422	$	183	$	215	$	820

Director Deferred Compensation

In November 2004, the Company’s Board of Directors approved a Non-Qualified Deferred Compensation Plan (the “Plan”). The Plan governs the deferral of board and committee fees of non-employee members of the Board of Directors. Members of the Board of Directors may defer up to 100% of their board and committee fees for a specified period ranging from two to five years. The value of the deferred director compensation account is deemed “invested” in Company stock and is immediately vested. On a quarterly basis, the Company reserves shares of Republic’s stock within the Company’s stock option plan for ultimate distribution to Directors at the end of the deferral period.

The following table presents information on director deferred compensation shares reserved for the periods shown:


	2017			2016			2015
		Weighted			Weighted			Weighted
	Shares	Average Market		Shares	Average Market		Shares	Average Market
	Deferred	Price at Date of		Deferred	Price at Date of		Deferred	Price at Date of
Years ended December 31,	Class A	Deferral		Class A	Deferral		Class A	Deferral

Balance, beginning of period	64,155	$	22.94	62,253	$	22.12	58,604	$	21.56
Awarded	5,199		36.81	6,208		29.99	8,586		25.24
Released	(5,456)		22.84	(4,306)		21.13	(4,937)		21.00
Balance, end of period	63,898	$	24.08	64,155	$	22.94	62,253	$	22.12

Director deferred compensation has been expensed as follows:


Years Ended December 31, (in thousands)	2017		2016		2015

Director deferred compensation expense	$	191	$	170	$	223