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 replaced the 2005 Stock Incentive Plan. 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 2015 Plan 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,	2019			2018			2017


Risk-free interest rate		1.85	%		3.00	%		2.07	%
Expected dividend yield		2.25	%		2.01	%		2.41	%
Expected stock price volatility		20.11	%		18.59	%		20.36	%
Expected life of options (in years)		5			5			5
Estimated fair value per share	$	7.12		$	8.09		$	5.46

The following table summarizes stock option activity from January 1, 2018 through December 31, 2019:


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

Outstanding, January 1, 2018	295,000	$	24.68
Granted	165,000		48.08
Exercised	(3,500)		24.10
Forfeited or expired	(23,300)		26.51
Outstanding, December 31, 2018	433,200	$	33.50	3.15	$	3,786,820

Outstanding, January 1, 2019	433,200	$	33.50
Granted	5,500		47.02
Exercised	(100,600)		24.50
Forfeited or expired	(26,650)		36.00
Outstanding, December 31, 2019	311,450	$	36.43	2.73	$	3,449,454

Unvested	255,650	$	38.91	3.15	$	2,235,562
Exercisable (vested) at December 31, 2019	55,800	$	25.08	0.77	$	1,213,892

Information related to the stock options during each year follows:



Years Ended December 31,	2019		2018		2017

Intrinsic value of options exercised	$	2,249	$	79	$	71
Cash received from options exercised, net of shares redeemed		(191)		83		68

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


December 31, (in thousands)	2019		2018

Outstanding loans	$	355	$	133

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 activity from January 1, 2018 through December 31, 2019:


	Restricted
	Stock Awards	Weighted-Average
	Class A Shares	Grant Date Fair Value
Outstanding, January 1, 2018	41,610	$	21.18
Granted	48,323		40.16
Forfeited	(1,500)		19.85
Earned and issued	(37,323)		21.33
Outstanding, December 31, 2018	51,110	$	39.06

Outstanding, January 1, 2019	51,110	$	39.06
Granted	2,336		49.34
Forfeited	—		—
Earned and issued	(12,336)		46.63
Outstanding, December 31, 2019	41,110	$	37.37

Unvested	41,110	$	37.37

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 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 ROA, 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 ROA 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”) makes all determinations regarding the achievement of ROA 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 is final and binding on all parties. The Committee reserves the right, in its sole discretion, to adjust the calculation of ROA 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, 2018 through December 31, 2019:


	Performance
	Stock Units	Weighted-Average
	Class A Shares	Grant Date Fair Value
Outstanding, January 1, 2018	48,500	$	23.08
Granted	—		—
Forfeited	(2,500)		23.08
Earned and issued	—		—
Outstanding, December 31, 2018	46,000	$	23.08

Outstanding, January 1, 2019	46,000	$	23.08
Granted	—		—
Forfeited	—		—
Earned and issued	(23,000)		23.08
Outstanding, December 31, 2019	23,000	$	23.08

Vested at December 31, 2019	23,000	$	23.08

Expense Related to Stock Incentive Plans

The Company recorded expense related to stock incentive plans for the years ended December 31, 2019, 2018, and 2017 as follows:




Years Ended December 31, (in thousands)	2019		2018		2017

Stock option expense	$	364	$	265	$	227
Restricted stock award expense		728		630		424
Performance stock unit expense		(57)		106		491
Total expense	$	1,035	$	1,001	$	1,142

Unrecognized expenses related to unvested awards under stock incentive plans are estimated as follows:


	Stock			Restricted
Year (in thousands)	Options			Stock Awards	Total

2020	$	304	$	261	$	565
2021		277		261		538
2022		240		237		477
2023		106		119		225
2024		5		16		21
2025 and beyond		—		—		—
Total	$	932	$	894	$	1,826

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 paid later in the form of 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, 2018	63,898	$	24.08
Deferred fees and dividend equivalents converted to stock units	5,081		41.82
Stock units converted to Class A Common Shares	(2,835)		23.94
Outstanding, December 31, 2018	66,144	$	25.45

Outstanding, January 1, 2019	66,144	$	25.45
Deferred fees and dividend equivalents converted to stock units	6,397		46.76
Stock units converted to Class A Common Shares	(5,178)		23.18
Outstanding, December 31, 2019	67,363	$	27.65

Vested	67,363	$	27.65

Director deferred compensation has been expensed as follows:


Years Ended December 31, (in thousands)	2019		2018		2017

Director deferred compensation expense	$	213	$	215	$	191

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	4,630		43.09
Matching stock units credited	4,992		43.09
Matching stock units forfeited	(362)		42.99
Stock units converted to Class A Common Shares	—		—
Outstanding, December 31, 2018	9,260	$	43.09

Outstanding, January 1, 2019	9,260	$	43.09
Deferred base salaries and dividend equivalents converted to stock units	7,059		45.84
Matching stock units credited	7,059		45.84
Matching stock units forfeited	—		—
Stock units converted to Class A Common Shares	—		—
Outstanding, December 31, 2019	23,378	$	41.75

Vested	14,953	$	41.75
Unvested	8,425	$	41.75

The following presents key-employee deferred compensation expense for the period presented:


Years Ended December 31, (in thousands)	2019		2018		2017

Key-employee - base salary	$	319	$	215	$	—
Key-employee - employer match		49		215		—
Total	$	368	$	430	$	—

Employee Stock Purchase Plan

On April 19, 2018, the shareholders of Republic approved the ESPP. Under the ESPP, participating employees may purchase shares of the Company Class A Common Stock through payroll withholdings at a purchase price that cannot be less than 85% of the lower of the fair market value of the Company’s Class A Common Stock on the first trading day of each offering period or on the last trading day of each offering period. Participating employees were able purchase the Company’s Class A Common Stock through the ESPP at 90% of its fair market value on the last day of the three-month offering periods ended September 30, 2018, December 31, 2018, March 31, 2019, June 30, 2019, September 30, 2019, and December 31, 2019.

The following presents expense under the ESPP for the period presented:


Years Ended December 31, (in thousands)	2019		2018		2017

ESPP expense	$	49	$	23	$	—