Note 7 - Stock Plans

9 Months Ended

Sep. 30, 2022

Notes to Financial Statements

Share-Based Payment Arrangement [Text Block]

7. Stock plans

The Company has one stock-based compensation plan (the stock compensation plan) from which it can grant stock-based compensation awards and applies the fair value method of accounting for stock-based compensation provided under current accounting guidance. The guidelines require the cost of share-based payment transactions (including those with employees and non-employees) be recognized in the financial statements. The Company’s stock compensation plan was shareholder-approved and permits the grant of share-based compensation awards to its employees and directors. The Company believes that the stock-based compensation plan will advance the development, growth and financial condition of the Company by providing incentives through participation in the appreciation in the value of the Company’s common stock. In return, the Company hopes to secure, retain and motivate the employees and directors who are responsible for the operation and the management of the affairs of the Company by aligning the interest of its employees and directors with the interest of its shareholders. In the stock compensation plan, employees and directors are eligible to be awarded stock-based compensation grants which can consist of stock options (qualified and non-qualified), stock appreciation rights (SARs) and restricted stock.

At the 2022 annual shareholders' meeting, the Company's shareholders approved and the Company adopted the 2022 Omnibus Stock Incentive Plan which replaced the 2012 Omnibus Stock Incentive Plan and the 2012 Director Stock Incentive Plan (collectively, the 2012 stock incentive plans). The 2012 stock incentive plans expired in 2022. Unless terminated by the Company’s board of directors, the 2022 Omnibus Stock Incentive Plan will expire on and no stock-based awards shall be granted after the year 2032.

In the 2022 Omnibus Stock Incentive Plan, the Company has reserved 500,000 shares of its no-par common stock for future issuance. The Company recognizes share-based compensation expense over the requisite service or vesting period. Since 2019, the Company has approved a Long-Term Incentive Plan (LTIP) each year that awarded restricted stock and/or stock-settled stock appreciation rights (SSARs) to senior officers and managers based on the attainment of performance goals. The SSAR awards have a ten-year term from the date of each grant.

During the first quarter of 2022, the Company approved a LTIP and awarded restricted stock to senior officers and managers in February 2022 based on 2021 performance.

During the first quarter of 2021, the Company approved a LTIP and awarded restricted stock to senior officers and managers in February and March 2021 based on 2020 performance.

The following table summarizes the weighted-average fair value and vesting of restricted stock grants awarded during the periods ended September 30, 2022 and 2021 under the 2022 and 2012 stock incentive plans:

	September 30, 2022					September 30, 2021
				Weighted-					Weighted-
	Shares			average grant		Shares			average grant
	granted			date fair value		granted			date fair value
Director plan		18,000	(2)	$	49.85		12,500	(2)	$	52.00
Omnibus plan		16,520	(3)		49.85		13,552	(3)		52.00
Omnibus plan		50	(1)		35.91		50	(1)		58.17
Omnibus plan		-					36	(3)		58.17
Omnibus plan		-					476	(2)		52.62
Total		34,570		$	49.83		26,614		$	52.03

⁽¹⁾ Vest after 1 year ⁽²⁾ Vest after 3 years – 33% each year ⁽³⁾ Vest fully after 3 years

The fair value of the shares granted in 2022 and 2021 was calculated using the grant date stock price.

A summary of the status of the Company’s non-vested restricted stock as of and changes during the period indicated are presented in the following table:

	2012 & 2022 Stock incentive plans
	Director			Omnibus			Total			Weighted- average grant date fair value
Non-vested balance at December 31, 2021		14,920			28,123			43,043		$	53.20
Granted		18,000			16,570			34,570			49.83
Forfeited		-			(3,323	)		(3,323	)		52.20
Vested		(9,048	)		(2,651	)		(11,699	)		52.83
Non-vested balance at September 30, 2022		23,872			38,719			62,591		$	51.46

A summary of the status of the Company’s SSARs as of and changes during the period indicated are presented in the following table:

	Awards		Weighted-average grant date fair value		Weighted-average remaining contractual term (years)
Outstanding December 31, 2021		94,332	$	9.66		5.5
Granted		-
Exercised		-
Forfeited		-
Outstanding September 30, 2022		94,332	$	9.66		4.8

Of the SSARs outstanding at September 30, 2022, all SSARs vested and were exercisable.

There were no SSARs exercised during the first nine months of 2022. During the first nine months of 2021, there were 2,932 SSARs exercised. The intrinsic value recorded for these SSARs was $10,190. The tax deduction realized from the exercise of these SSARs was $125,810 resulting in a tax benefit of $26,420.

Share-based compensation expense is included as a component of salaries and employee benefits in the consolidated statements of income. The following tables illustrate stock-based compensation expense recognized on non-vested equity awards during the three and nine months ended September 30, 2022 and 2021 and the unrecognized stock-based compensation expense as of September 30, 2022:

	Three months ended September 30,				Nine months ended September 30,
(dollars in thousands)	2022		2021		2022		2021
Stock-based compensation expense:
2012 Director stock incentive plan	$	126	$	170	$	497	$	339
2012 Omnibus stock incentive plan		132		163		447		477
2022 Omnibus stock incentive plan		-		-		1		-
Employee stock purchase plan		-		-		32		44
Total stock-based compensation expense	$	258	$	333	$	977	$	860

In addition, during the nine months ended September 30, 2021, the Company reversed accruals of ($10 thousand) in stock-based compensation expense for restricted stock and SSARs awarded under the 2012 Omnibus Stock Incentive Plan.

	As of
(dollars in thousands)	September 30, 2022
Unrecognized stock-based compensation expense:
2012 Director stock incentive plan	$	898
2012 Omnibus stock incentive plan		985
2022 Omnibus stock incentive plan		1
Total unrecognized stock-based compensation expense	$	1,884

The unrecognized stock-based compensation expense as of September 30, 2022 will be recognized ratably over the periods ended February 2025 and February 2025 for the 2012 Director Stock Incentive Plan and the 2012 Omnibus Stock Incentive Plan, respectively.

In addition to the 2022 stock incentive plan, the Company established the 2002 Employee Stock Purchase Plan (the ESPP) and reserved 165,000 shares of its un-issued capital stock for issuance under the plan. The ESPP was designed to promote broad-based employee ownership of the Company’s stock and to motivate employees to improve job performance and enhance the financial results of the Company. Under the ESPP, participation is voluntary whereby employees use automatic payroll withholdings to purchase the Company’s capital stock at a discounted price based on the fair market value of the capital stock as measured on either the commencement or termination dates, as defined. As of September 30, 2022, 94,533 shares have been issued under the ESPP. The ESPP is considered a compensatory plan and is required to comply with the provisions of current accounting guidance. The Company recognizes compensation expense on its ESPP on the date the shares are purchased, and it is included as a component of salaries and employee benefits in the consolidated statements of income.

During the second quarter of 2022, the Company announced that the Board of Directors approved a plan to purchase, in open market and privately negotiated transactions, up to 3% of its outstanding common stock. As of September 30, 2022, the Company had repurchased 31,839 shares of common stock at an average price of $38.79 under the treasury stock repurchase plan.