13. STOCK PLANS AND STOCK BASED COMPENSATION

In 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 circumstances, 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.

The following table summarizes stock option activity from January 1, 2017 through June 30, 2018:


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

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

Outstanding, January 1, 2018	295,000	$	24.68
Granted	3,000		45.50
Exercised	(2,000)		24.44
Forfeited or expired	(4,600)		24.47
Outstanding, June 30, 2018	291,400	$	24.90	2.41	$	5,945,072

Unvested	291,400	$	24.90	2.41	$	5,945,072
Exercisable (vested) at June 30, 2018	—	$	—	—	$	—

The following table presents information related to stock options:


	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands, except per share data)	2018		2017		2018		2017

Intrinsic value of options exercised	$	42	$	—	$	42	$	44
Cash received from options exercised, net of shares redeemed		48		—		48		33
Weighted-average fair value per share of options granted		8.01		5.61		NA		5.61

NA - Not applicable

Restricted Stock Awards

Restricted stock awards generally vest within 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 awards activity from January 1, 2017 through June 30, 2018:


	Restricted
	Stock Awards	Weighted-Average
	Class A Shares	Grant Date Fair Value
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

Outstanding, January 1, 2018	41,610	$	21.18
Granted	38,323		38.64
Forfeited	(750)		19.85
Earned and issued	(2,323)		43.60
Outstanding, June 30, 2018	76,860	$	29.22

Unvested	76,860	$	29.22

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 Compensation Committee (the “Committee”) shall make all determinations regarding the achievement of ROAA based on the Company’s audited financial statements and average assets as reported in the Company's Annual Report on Form 10-K with the Securities and Exchange Commission, and the determination of the Committee shall be final and binding on all parties. The Committee reserves the right, in its sole discretion, to adjust the calculation of ROAA downward for income or expense items that it considers to be infrequent or nonrecurring in nature.

The following table summarizes PSU activity from January 1, 2017 through June 30, 2018:


	Performance
	Stock Units	Weighted-Average
	Class A Shares	Grant Date Fair Value
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

Outstanding, January 1, 2018	48,500	$	23.08
Granted	—		—
Forfeited	—		—
Earned and issued	—		—
Outstanding, June 30, 2018	48,500	$	23.08

Unvested	48,500	$	23.08

Expense Related to the 2015 Stock Incentive Plan

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. Grants to non-employee directors are included within director fees, a component of other noninterest expense.

The Company recorded expense related to the 2015 Plan for the three and six months ended June 30, 2018 and 2017 as follows:


	Three Months Ended				Six Months Ended
	June 30,				June 30,
(in thousands)	2018		2017		2018		2017

Stock option expense	$	56	$	63	$	118	$	126
Restricted stock award expense		254		77		318		292
Performance stock unit expense		27		105		53		237
Total expense	$	337	$	245	$	489	$	655

Unrecognized expenses related to unvested awards (net of estimated forfeitures) under the 2015 Plan are estimated as follows:


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

2018	$	122	$	212	$	91	$	425
2019		142		261		—		403
2020		39		261		—		300
2021		9		261		—		270
2022		6		237		—		243
2023 and beyond		2		135		—		137
Total	$	320	$	1,367	$	91	$	1,778

Deferred Compensation

On April 19, 2018, the shareholders of Republic approved an amendment and restatement of the Non-Employee Director and Key Employee Deferred Compensation Plan (the “Plan”). Prior to the Plan’s 2018 amendment and restatement, only directors participated in the plan, with the 2018 amendment and restatement initiating key-employee participation. The Plan provides non-employee directors and designated key employees the ability to defer compensation and have those deferred amounts then paid later in Company Class A Common shares based on the shares that could have been acquired as the deferrals were made. The Company maintains a bookkeeping account for each director or key-employee participant, and at the end of each fiscal quarter, deferred compensation is converted to “stock units” equal to the amount of compensation deferred during the quarter divided by the quarter-end fair market value of the Company’s Class A Common stock. Stock units for each participant’s account are also credited with an amount equal to the cash dividends that would have been paid on the number of stock units in the account if the stock units were deemed to be outstanding shares of stock. Any dividends credited are converted into additional stock units at the end of the fiscal quarter in which the dividends were paid.

DIRECTORS

Members of the Board of Directors may defer board and committee fees from two to five years, with each director participant retaining a nonforfeitable interest in his or her deferred compensation account.

The following table presents information on director deferred compensation under the Plan for the periods presented:


	Outstanding	Weighted-Average
	Stock	Market Price
	Units	at Date of Deferral
Outstanding, January 1, 2017	64,155	$	22.94
Deferred fees and dividend equivalents converted to stock units	5,199		36.81
Stock units converted to Class A Common Shares	(5,456)		22.84
Outstanding, December 31, 2017	63,898	$	24.08

Outstanding, January 1, 2018	63,898	$	24.08
Deferred fees and dividend equivalents converted to stock units	2,426		41.16
Stock units converted to Class A Common Shares	(2,835)		23.94
Outstanding, June 30, 2018	63,489	$	24.74

Vested	63,489	$	24.74

KEY EMPLOYEES

Designated key employees may defer a portion of their base salaries on a pre-tax basis under the Plan, with the Company matching employee deferrals up to a prescribed limit. With limited exception, the Company match amount remains unvested until December 31st of the year that is five years from the beginning of the year that the Company match is made.

The following table presents information on key employee deferred compensation under the Plan for the periods presented:


	Outstanding	Weighted-Average
	Stock	Market Price
	Units	at Date of Deferral
Outstanding, January 1, 2018	—	$	—
Deferred base salaries and dividend equivalents converted to stock units	1,241		45.30
Matching stock units credited	1,241		45.30
Stock units converted to Class A Common Shares	—		—
Outstanding, June 30, 2018	2,482	$	45.30

Vested	1,241	$	45.30
Unvested	1,241	$	45.30