STOCK-BASED COMPENSATION PLANS

12 Months Ended

Dec. 31, 2022

STOCK-BASED COMPENSATION PLANS

STOCK-BASED COMPENSATION PLANS

NOTE L:  STOCK-BASED COMPENSATION PLANS

The Company has a long-term incentive program for directors, officers and employees. Under this program, the Company initially authorized four million shares of Company common stock for the grant of incentive stock options, nonqualified stock options, restricted stock awards, and retroactive stock appreciation rights. The long-term incentive program was amended effective May 25, 2011, May 14, 2014 and May 17, 2017 to authorize an additional 900,000 shares, 1,000,000 shares and 1,000,000 shares respectively, for the grant of incentive stock options, nonqualified stock options, restricted stock awards, and retroactive stock appreciation rights. Effective May 18, 2022 a new plan was put in place that authorized 600,000 shares of Company common stock for the same purpose. As of December 31, 2022, the Company has authorization to grant up to approximately 1.0 million additional shares of Company common stock for these instruments.

Nonqualified Stock Options

The Company recognized stock-based compensation expense related to non-qualified stock options of $2.9 million, $2.6 million and $2.7 million for the years ended December 31, 2022, 2021 and 2020, respectively. A related income tax benefit was recognized of $0.7 million, $0.6 million and $0.7 million for the 2022, 2021 and 2020 years, respectively.

The nonqualified (offset) stock options in its Director’s Stock Balance Plan vest and become exercisable immediately and expire one year after the date the director retires or two years in the event of death. The remaining options have a ten-year term, and vest and become exercisable on a grant-by-grant basis, ranging from immediate vesting to ratably over a five-year period.

Activity in this long-term incentive program is as follows:

	Stock Options
		Weighted-
		average Exercise
	Outstanding	Price of Shares
Outstanding at December 31, 2020	1,542,259	$	45.49
Granted	168,976		79.68
Exercised	(310,423)		40.17
Forfeited	(8,107)		61.56
Outstanding at December 31, 2021	1,392,705		50.73
Granted	173,313		71.78
Exercised	(67,566)		41.61
Forfeited	(13,430)		67.88
Outstanding at December 31, 2022	1,485,022		53.45
Exercisable at December 31, 2022	1,005,851	$	47.31

The following table summarizes the information about stock options outstanding under the Company’s stock option plan at December 31, 2022:

	Options outstanding				Options exercisable
		Weighted-		Weighted-		Weighted-
		average		average		average
		Exercise		Remaining		Exercise
Range of Exercise Price	Shares	Price		Life (years)	Shares	Price
$0.00 – $25.00	40,002	$	23.04	4.00	40,002	$	23.04
$25.01 – $35.00	51,744		29.79	0.21	51,744		29.79
$35.01 – $45.00	386,999		37.07	2.45	386,999		37.07
$45.01 – $55.00	674,921		55.55	5.86	472,240		56.06
$55.01 – $81.00	331,356		75.67	8.68	54,866		78.44
TOTAL	1,485,022	$	47.31	5.35	1,005,851	$	47.31

The weighted-average remaining contractual term of outstanding and exercisable stock options at December 31, 2022 is 5.35 years and 4.14 years, respectively. The aggregate intrinsic value of outstanding and exercisable stock options at December 31, 2022 is $18.3 million and $16.6 million, respectively.

Management estimated the fair value of options granted using the Black-Scholes option-pricing model. This model was originally developed to estimate the fair value of exchange-traded equity options, which (unlike employee stock options) have no vesting period or transferability restrictions. As a result, the Black-Scholes model is not necessarily a precise indicator of the value of an option, but it is commonly used for this purpose. The Black-Scholes model requires several assumptions, which management developed based on historical trends and current market observations. Expected volatilities are based on historical volatilities of the Company’s common stock. The Company uses historical data to estimate option exercise and post-vesting termination behavior. The expected term of options granted is based on historical data and represents the period of time that options granted are expected to be outstanding, which takes into account that the options are not transferable. The risk-free interest rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of the grant.

	2022			2021			2020
Weighted-average Fair Value of Options Granted	$	17.86		$	18.43		$	10.86
Assumptions:
Weighted-average expected life (in years)		6.50			6.50			6.50
Future dividend yield		2.41	%		2.48	%		2.57	%
Share price volatility		29.88	%		30.09	%		29.29	%
Weighted-average risk-free interest rate		2.16	%		1.28	%		0.67	%

Unrecognized stock-based compensation expense related to non-vested stock options totaled $5.6 million at December 31, 2022. The weighted-average period over which this unrecognized expense would be recognized is 3.2 years. The total fair value of stock options vested during 2022, 2021, and 2020 were $2.7 million, $2.5 million and $2.5 million, respectively.

During the 12 months ended December 31, 2022 and 2021, proceeds from stock option exercises totaled $3.2 million and $14.2 million, respectively, and the related tax benefits from exercise were approximately $0.3 million and $1.8 million, respectively. During the twelve months ended December 31, 2022 and 2021, approximately 0.06 million and 0.3 million shares, respectively, were issued in connection with stock option exercises each year. The total intrinsic value of options exercised during 2022, 2021 and 2020 were $2.0 million, $10.3 million and $6.6 million, respectively.

Restricted Stock Awards

Compensation expense is recognized over the vesting period of the awards based on the fair value of the Company’s stock at grant date. The Company recognized stock-based compensation expense related to restricted stock vesting recognized in the income statement for 2022, 2021 and 2020 was approximately $3.8 million, $2.8 million and $2.7 million, respectively.

The fair value of restricted stock awards is based on the end-of-day share price of the Company’s stock on the grant date. Restricted stock awards granted prior to 2022 vest ratably over a five-year period and restricted stock awards granted in 2022 and thereafter vest ratably over a three-year period. During the forfeiture period, shares that have not been forfeited have the right to vote and the right to receive dividends.

A summary of the status of the Company’s unvested restricted stock awards as of December 31, 2022, and changes during the twelve months ended December 31, 2022 and 2021, is presented below:

	Restricted	Weighted-average
	Shares	grant date fair value
Unvested at December 31, 2020	127,432	$	53.97
Awards	51,456		79.51
Forfeitures	(2,041)		55.39
Vestings	(47,399)		53.13
Unvested at December 31, 2021	129,448		64.32
Awards	56,871		71.58
Forfeitures	(2,940)		67.44
Vestings	(49,859)		62.86
Unvested at December 31, 2022	133,520	$	67.89

Unrecognized stock-based compensation expense related to unvested restricted stock totaled $6.4 million at December 31, 2022, which will be recognized as expense over the next three or five years according to the awards vesting schedule. The weighted-average period over which this unrecognized expense would be recognized is 2.4 years. The total fair value of restricted stock vested during 2022, 2021, and 2020 were $3.1 million, $2.5 million and $2.7 million, respectively.

Performance Awards

The long-term incentive program provides for the issuance of shares of performance award restricted stock to officers and key employees. There are two sets of performance criteria based on the individual award; (1) based on the Company’s cumulative three year Relative Total Shareholder Return (“TSR”) ranking compared to the constituents of the KBW Regional Bank Index, and continued employment weighted at 50%; and (2) three year Average Relative Return on Average Core Tangible Common Equity (“Core ROATCE”) Relative Total Performance Goal weighted at 50%. Compensation expense is recognized over the vesting period of the awards based on the fair value of the stock at issue date. Management estimated the fair value of the stock granted under performance criteria (1) using the Monte Carlo Simulation and stock granted under performance criteria (2) using the grant date fair value. Performance shares cliff vest based on performance results for a three year period. Compensation cost is estimated based on the probability that the performance conditions will be achieved. As of December 31, 2022, the compensation cost is estimated at 90% payout under the terms of the plan for the different performance sets. At each reporting period, the Company will reassess the likelihood of achieving the performance criteria and will adjust compensation expense as needed. The shares have voting rights. Upon vesting of the performance shares, any dividends declared during the vesting period will be paid based on the shares vested. Total shares issuable under the plan are 31,999 at December 31, 2022 and all shares were issued in 2022.

	Performance
	Restricted	Weighted-average
	Shares	grant date fair value
Unvested at December 31, 2020	48,976	$	29.71
Awards	0		0.00
Forfeitures	(578)		29.71
Vestings	(578)		29.71
Unvested at December 31, 2021	47,820		29.71
Awards	35,815		34.93
Forfeitures	(51,000)		30.02
Vestings	(636)		35.89
Unvested at December 31, 2022	31,999	$	34.93

Unrecognized stock-based compensation expense related to unvested performance restricted stock totaled $0.7 million at December 31, 2022, which will be recognized as expense over the next three years. The weighted-average period over which this unrecognized expense would be recognized is 2.0 years. The total fair value of restricted stock vested during 2022, 2021, and 2020 were $0.02 million, $0.01 million and $0.1 million, respectively.