Stock-Based Compensation Plans

Stock-Based Compensation

On April 29, 2003 and May 1, 2012, the shareholders of the Company approved the 2003 Plan and 2012 Plan, respectively. The maximum number of shares of stock reserved and available for issuance under each the 2003 Plan and 2012 Plan is 1.2 million shares. As shares or units are vested or options are exercised, new shares are issued out of either the 2003 or 2012 Plan. Awards may be granted in the form of incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units, unrestricted stock, performance shares and dividend equivalent rights, or any combination of the preceding, and the exercise price shall not be less than 100% of the fair market value on the date of grant in the case of incentive stock options, or 85% of the fair market value on the date of grant in the case of non-qualified stock options. No stock option is exercisable more than ten years after the date the stock option is granted. The exercise price of all options granted equaled the market price of the Company's stock on the date of grant, except for the non-qualified stock options issued in conjunction with the acquisition of SBM. Refer to Note 2 for additional details.

The amount of cash used to settle stock-based compensation transactions for the year ended December 31, 2017, 2016 and 2015 was $902,000, $373,000 and $157,000, respectively.

Stock Option Awards

Stock options granted under the 2003 Plan and the 2012 Plan have been both incentive stock options and non-qualified stock options. All incentive stock options and non-qualified stock options granted vest pro rata over a five year period and have a contractual life of ten years.

On the date of each grant, the fair value of each award is derived using the Black-Scholes option pricing model based on assumptions made by the Company as follows:


•	Dividend yield is based on the dividend rate of the Company’s stock at the date of grant.


•	Risk-free interest rate is based on the U.S. Treasury bond rate with a term equaling the expected life of the granted options.


•	Expected volatility is based on the historical volatility of the Company’s stock price calculated over the expected life of the option.


•	Expected life represents the period of time that granted options are expected to be outstanding based on historical trends.

For the year ended December 31, 2017, 2016 and 2015, the Company issued stock options with a grant-date fair value of $0, $16,000 and $22,000, respectively. The following table presents the option pricing assumptions and the estimated fair value of the options using these assumptions for grants made for the year ended:



	December 31,
	2017			2016			2015
Weighted-average dividend yield	—		%	3.12		%	3.01		%
Weighted-average risk-free interest rate	—		%	1.52		%	1.50		%
Weighted-average expected volatility	—		%	29.64		%	31.85		%
Weighted-average expected life (in years)	0.0			5.3			5.3
Weighted-average fair value of options granted	$	—		$	5.17		$	5.87

Compensation expense is recognized on a straight-line basis over the option vesting period. For the year ended December 31, 2017, 2016 and 2015, the compensation expense recognized for stock options was $20,000, $30,000 and $51,000, respectively. The Company does not receive any tax benefit on its issuance of incentive stock options, unless upon exercise a disqualifying disposition is made. The total tax benefit to the Company upon exercise of incentive stock options for the year ended December 31, 2017, 2016 and 2015 was $21,000, $36,000, and $59,000, respectively. Additionally, for the year ended December 31, 2017, 2016 and 2015, the Company received a tax benefit upon the exercise of non-qualified stock options that were issued as consideration in the acquisition of SBM, of $21,000, $378,000 and $0, respectively.

Unrecognized compensation expense for nonvested stock options totaled $41,000 at December 31, 2017 and is expected to be recognized over the remaining weighted-average vesting period of 2.3 years. The total intrinsic value of options exercised for the year ended December 31, 2017, 2016 and 2015 was $268,000, $2.5 million, and $573,000, respectively.

Stock option activity for the year ended December 31, 2017 was as follows:



	Number of Options		Weighted-Average Exercise Price per Option		Weighted-Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value
Options outstanding at January 1, 2017	58,743		$	20.38
Granted	—		—
Exercised	(11,841	)	17.50
Forfeited	(2,400	)	26.23
Expired	(1,425	)	23.11
Options outstanding at December 31, 2017	43,077		$	21.00	3.45	$	910
Options exercisable at December 31, 2017	39,627		$	20.58	3.11	$	854

A summary of the status of the Company’s nonvested stock options as of December 31, 2017 and changes during the year then ended was as follows:



	Options		Weighted-Average Grant Date Fair Value per Option
Nonvested at January 1, 2017	9,450		$	6.59
Granted	—		—
Vested	(3,600	)	7.80
Forfeited	(2,400	)	5.48
Nonvested at December 31, 2017	3,450		$	6.11

For the year ended December 31, 2017, 2016 and 2015 the Company received cash from the exercise of stock options of $98,000, $1.3 million and $736,000 respectively.

Restricted Stock Units

For the year ended December 31, 2017, 2016 and 2015, the Company issued restricted stock units with a grant-date fair value of $808,000, $0 and $0, respectively, to certain employees. The grant-date fair value is calculated utilizing the Company's closing market share price as of the date the awards are granted. Restricted stock units vest pro-rata over the requisite service period, which is typically three to five years, and may contain certain performance-based conditions. Restricted stock units issued do not participate in dividends and recipients are not entitled to vote these restricted units until they vest.

Compensation expense and the related income tax benefit recognized in connection with the restricted stock units was as follows for the periods indicated:



	For The Year Ended December 31,
	2017		2016		2015
Compensation expense	$	124	$	—	$	—
Income tax benefit	27		—		—
Fair value of grants vested	—		—		—

Restricted stock unit activity for the year ended December 31, 2017 was as follows:



	Number of Units		Weighted-Average Grant Date Fair Value per Unit		Weighted-Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value		Unrecognized Compensation
Nonvested at January 1, 2017	—		$	—
Granted	18,762		43.05
Vested	—		—
Forfeited	(1,285	)	43.11
Nonvested at December 31, 2017	17,477		$	43.04	4.6	$	736	$	620

Restricted Stock Awards

For the year ended December 31, 2017, 2016 and 2015, the Company issued restricted stock awards with a grant-date fair value of $686,000, $925,000 and $1.0 million, respectively, to certain directors and employees. The grant-date fair value is calculated utilizing the Company's closing market share price as of the date the awards are granted. Restricted stock awards vest pro-rata over the requisite service period, which is typically three to five years, with the exception of awards issued to Company directors that typically vest immediately, and may contain certain performance-based conditions. Nonvested restricted stock awards participate in dividends and recipients are entitled to vote these restricted shares during the vesting period.

Compensation expense and the related income tax benefit recognized in connection with the restricted stock awards was as follows for the periods indicated:



	For The Year Ended December 31,
	2017		2016		2015
Compensation expense	$	762	$	703	$	327
Income tax benefit	164		246		114
Fair value of grants vested	702		603		341

Restricted stock award activity for the year ended December 31, 2017 is as follows:



	Number of Shares		Weighted-Average Grant Date Fair Value per Share		Weighted-Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value		Unrecognized Compensation
Nonvested at January 1, 2017	47,518		$	28.16
Granted	16,185		42.39
Vested	(22,553	)	31.14
Forfeited	(4,825	)	28.93
Nonvested at December 31, 2017	36,325		$	32.56	2.2	$	1,530	$	787

MSPP

For the year ended December 31, 2017, 2016 and 2015, the Company issued MSPP awards with a grant-date fair value of $111,000, $128,000 and $108,000, respectively, to certain employees. The Company offers the MSPP to provide an opportunity for certain employees to receive restricted shares of the Company’s common stock in lieu of their annual incentive bonus. Restricted shares issued under the MSPP are granted at a discount of one-third of the fair market value of the stock on the date of grant and cliff vests two years after the grant date. Should an employee forfeit his or her nonvested MSPP awards, the Company will return the lesser of the strike price paid by the employee or the fair value of the nonvested awards as of the date forfeited. Restricted stock issued under the MSPP to certain employees participate in dividends and are entitled to vote these restricted shares during the vesting period.

Compensation expense and the related income tax benefit recognized in connection with the MSPP awards was as follows for the periods indicated:



	For The Year Ended December 31,
	2017		2016		2015
Compensation expense	$	97	$	102	$	66
Income tax benefit	21		36		23
Fair value of grants vested	91		57		92

MSPP award activity for the year ended December 31, 2017 was as follows:



	Number of Shares		Weighted-Average Grant Date Fair Value per Share		Weighted-Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value		Unrecognized Compensation
Nonvested at January 1, 2017	26,699		$	7.85
Granted	8,088		13.73
Vested	(11,777	)	7.73
Forfeited	(2,791	)	11.49
Nonvested at December 31, 2017	20,219		$	9.77	1.0	$	431	$	54

For the year ended December 31, 2017, 2016 and 2015 the Company received cash from the issuance of restricted shares under the MSPP of $180,000, $241,000 and $220,000 respectively. At December 31, 2017 and 2016, $421,000 and $454,000 of the MSPP cash received was included in accrued interest and other liabilities in the consolidated statements of condition.

LTIP

The LTIP is intended to attract and retain executives who will contribute to the Company’s future success. The long-term performance period is a period of three consecutive years beginning on January 1 of the first year and ending on December 31 of the third year. Awards are based upon either: (i) the attainment of certain performance targets on specific performance measures selected by the Compensation Committee and approved by the Board of Directors; or (ii) 50% weighted on the attainment of certain performance targets on specific performance measures selected by the Compensation Committee and approved by the Board of Directors and 50% weighted on meeting the requisite service period. The performance-based share units granted will vest only if specific performance measures, as defined under the LTIP, are achieved. Failure to achieve the specific performance measures will result in all or a portion of the shares being forfeited. The service-based share units granted vest annually pro-rata over the three year period. For the year ended December 31, 2017, 2016 and 2015, the Company issued restricted stock awards as part of the LTIP to certain executives with a grant-date fair value of $697,000, $502,000 and $0, respectively. For the year ended December 31, 2017, 2016 and 2015, the Company issued performance-based stock awards with a grant-date fair value of $697,000, $502,000 and $963,000, respectively. The grant-date fair value is calculated utilizing the Company's closing market share price as of the date the awards are granted.

Compensation expense recognized for the LTIP's restricted stock awards was presented within "—Restricted Stock Awards^" above. Compensation expense for the LTIP's performance-based awards was presented in the following table:



	For The Year Ended December 31,
	2017		2016		2015
Compensation expense⁽¹⁾	$	370	$	1,080	$	330
Related income tax benefit	80		378		116
Fair value of grants vested	843		725		412

LTIP restricted stock award activity for the year ended December 31, 207 was presented within "—Restricted Stock Awards^" above. LTIP performance-based award activity for the year ended December 31, 2017 was as follows:



	Number of Shares		Weighted-Average Grant Date Fair Value per Share		Weighted-Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value		Unrecognized Compensation
Nonvested at January 1, 2017	52,737		$	27.01
Granted	16,830		41.39
Vested	(32,323	)	26.09
Forfeited	(5,621	)	26.97
Nonvested at December 31, 2017	31,623		$	35.60	1.7	$	1,332	$	291

DCRP

The DCRP is an unfunded deferred compensation plan for the benefit of certain Company executives. The Company’s Compensation Committee determines eligibility in the DCRP and annually, participants will receive a credit to an account administered by the Company of 10% of each participant’s annual base salary and bonus for the prior performance period. Annual credits to a participant’s account will be denominated in deferred stock awards (the right to receive a share of common stock of the Company upon the satisfaction of certain restrictions) based on the fair market value of the common stock of the Company on the date of grant. Vesting occurs ratably from the date of participation until the participant reaches the age of 65, at which time the participant is 100% vested. Subsequent to December 31, 2017, the DCRP was amended providing the ability to tailor vesting terms for new participants. Upon retirement or termination of employment, the participant will receive shares of common stock equal to the Deferred Stock Awards in the account multiplied by the vested percentage, reduced by the amount to be withheld for income taxes; unvested awards will be forfeited. For the year ended December 31, 2017, 2016 and 2015, the Company issued DCRP awards with a grant-date fair value of $118,000, $111,000 and $93,000, respectively. The grant-date fair value is calculated utilizing the Company's closing market share price as of the date the awards are granted.

Compensation expense recognized in connection with the DCRP was presented in the following table:



	For The Year Ended December 31,
	2017		2016		2015
Compensation expense	$	97	$	81	$	62
Related income tax benefit	21		28		22
Fair value of grants vested	90		75		59

DCRP award activity for the year ended December 31, 2017 was as follows:



	Number of Deferred Stock Awards		Weighted-Average Grant Date Fair Value per Award		Weighted-Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value		Unrecognized Compensation
Nonvested at January 1, 2017	14,244		$	23.65
Granted	2,772		42.66
Vested	(2,776	)	32.50
Forfeited	(4,192	)	25.88
Nonvested at December 31, 2017	10,048		$	25.52	9.2	$	423	$	229