EMPLOYEE AND DIRECTOR BENEFITS

12 Months Ended

Dec. 31, 2023

Incentive Stock Compensation

The Company maintains the 2017 Incentive Stock Compensation Plan which allows for the grants to directors and employees of incentive and nonqualified stock options depending on the eligibility of the recipient. In addition, it allows for the grants of restricted stock and restricted stock units. The grants, including the terms of the award, are determined by the Compensation Committee, and approved by the Board of Directors. As of December 31, 2023, there are 319,575 equity units available to be granted.

Incentive Stock Options

Pertinent information related to the options is as follows:


	Number	Weighted Average Exercise Price
Year Ended December 31, 2023
Options outstanding, beginning of year	518,259	$	15.72
Granted	27,839	29.73
Exercised	(180,141)	13.07
Forfeited	(40,242)	21.61
Options outstanding, end of year	325,715	$	17.65
Weighted average remaining contractual life		5.32 years

Exercisable, end of year	269,045	$	16.39

Year Ended December 31, 2022
Options outstanding, beginning of year	501,492	$	15.37
Granted	32,067	20.61
Exercised	(15,300)	14.43
Forfeited	—	—
Options outstanding, end of year	518,259	$	15.72
Weighted average remaining contractual life		5.72 years

Exercisable, end of year	405,125	$	14.66

Incentive Stock Options (Continued)

Exercisable options at December 31, 2023 were as follows:


Exercise Price		Shares	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value
					(in years)	(dollars in thousands)

$	10.00	35,000	$	10.00	2.06	$	675
14.00		17,000	14.00		3.30	260
14.00		7,500	14.00		3.63	115
14.00		5,000	14.00		3.97	76
14.50		37,500	14.50		4.06	554
14.50		8,000	14.50		4.92	118
16.00		49,377	16.00		5.11	656
22.75		12,000	22.75		5.80	78
20.10		43,316	20.10		6.07	398
20.10		19,378	20.10		6.12	178
14.98		6,000	14.98		6.77	86
18.34		6,000	18.34		6.98	66
20.03		14,956	20.03		7.12	138
20.61		8,018	20.61		8.12	70
		269,045	$	16.39	4.92	$	3,467

For the years ended December 31, 2023 and 2022, the Company recognized $353 and $412, respectively, in stock-based compensation expense related to stock option awards. As of December 31, 2023 and 2022, there is $484 and $513, respectively, of total unrecognized compensation cost related to nonvested share-based compensation arrangements granted under the plan. The cost is expected to be recognized over a weighted average period of 1.49 years.

The fair value of each stock option award is estimated on the date of grant using a Black-Scholes-Merton valuation model that uses the assumptions noted in the following table. Expected volatilities are based on an average of traded community banks. The Company considers historical data and peer group data to estimate option exercise and employee termination within the valuation model; separate groups of employees that have similar historical exercise behavior are considered separately for valuation purposes. The expected term of options granted is based on the short-cut method and represents the period of time that options granted are expected to be outstanding. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant.

The following weighted average assumptions were used in the calculations for 2023 and 2022 as follows:


	December 31,
	2023		2022
Dividend yield	1.22%		1.75%
Weighted average volatility	76.02%		77.33%
Expected life in years	6.57 years		6.50 years
Risk-free interest rate	3.92%		1.93%
Weighted average grant-date fair value	$	19.14	$	12.47

Restricted Stock

The Company awarded 23,534 shares of restricted stock during 2023 and 24,265 in 2022. The restriction is based upon continuous service and the shares will vest equally over three to five years. Nonvested restricted stock consists of the following:


	Number	Weighted Average Grant Date Fair Value
Year Ended December 31, 2023
Nonvested, beginning of year	39,295	$	20.05
Granted	23,534	29.02
Forfeited	(7,135)	24.78
Vested	(24,949)	21.71
Nonvested, end of year	30,745	$	24.47

Year Ended December 31, 2022
Nonvested, beginning of year	39,314	$	19.50
Granted	24,265	20.61
Forfeited	—	—
Vested	(24,284)	19.71
Nonvested, end of year	39,295	$	20.05

As of December 31, 2023, there was $466 of unrecognized compensation cost related to nonvested restricted stock awards. Expense for restricted stock awards of $517 and $500 was recorded for the years ended December 31, 2023 and 2022, respectively.

Restricted Stock Units

On December 21, 2022, the Company amended the 2017 Incentive Stock Compensation Plan to allow for the grant of restricted stock units. The restriction is based upon continuous service until retirement and the units will vest over three years. Nonvested restricted stock units consists of the following:


	Number	Weighted Average Grant Date Fair Value
Year Ended December 31, 2023
Nonvested, beginning of year	71,429	$	28.52
Granted	—	—
Vested	(31,478)	28.52
Forfeited	(12,711)	28.52
Nonvested, end of year	27,240	$	28.52

Year Ended December 31, 2022
Nonvested, beginning of year	—	$	—
Granted	107,144	28.52
Vested	(35,715)	28.52
Nonvested, end of year	71,429	$	28.52

Restricted Stock Units (Continued)

As of December 31, 2023, there was $1,269 of unrecognized compensation cost related to nonvested restricted stock units. Expense for restricted stock units of $652 and $773 was recorded for the year ended December 31, 2023 and 2022, respectively.

Supplemental Executive Retirement Plan

The Company sponsors a supplemental executive retirement plan (SERP) providing for death and retirement benefits for certain executive officers. In connection with the SERP plan, the Company has purchased annuity contracts and bank owned life insurance from various insurance entities. The Company is the annuity owner throughout the term of the contract and as such, the annuity payments are paid directly to the Company. The Company in turn will make the benefit payments to the executives upon retirement over the executives’ life using the funds received from the annuity contracts. The Company will accrue the total obligation under the SERP over the executive’s future service period to the date full eligibility for the benefit is attained. The amounts to be accrued shall result in an accrued amount at the full eligibility date equal to the then present value of all of the future benefits expected to be paid.

The Company has recorded a liability as of December 31, 2023 and 2022, amounting to $5,095 and $4,399, respectively, for the present value of the future benefits to be paid under the SERP, which is recorded in other liabilities on the consolidated balance sheets. Expense related to the SERP totaled $821 and $821 for the years ended December 31, 2023 and 2022, respectively.

Bank Owned Life Insurance

Investments in bank owned life insurance programs are recorded at their respective cash surrender values. The cash surrender value and net interest earned on the related policies amounted to $29,884 and $698, respectively, as of and for the year ended December 31, 2023 and $29,186 and $624, respectively, as of and for the year ended December 31, 2022.