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.

The amount of cash used to settle stock-based compensation transactions for the year ended December 31, 2018, 2017 and 2016 was $848,000, $902,000 and $373,000, respectively.

Stock Option Awards

Stock options granted under the 2003 Plan and the 2012 Plan include 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, 2018, 2017 and 2016, the Company issued stock options with a grant-date fair value of $8,000, $0 and $16,000, 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,
	2018			2017	2016
Weighted-average dividend yield	2.36		%	N/A	3.12		%
Weighted-average risk-free interest rate	2.38		%	N/A	1.52		%
Weighted-average expected volatility	22.80		%	N/A	29.64		%
Weighted-average expected life (in years)	5.3			N/A	5.3
Weighted-average fair value of options granted	$	7.78		N/A	$	5.17

Compensation expense is recognized on a straight-line basis over the option vesting period. For the year ended December 31, 2018, 2017 and 2016, the compensation expense recognized for stock options was $10,000, $20,000 and $30,000, 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, 2018, 2017 and 2016 was $50,000, $21,000, and $36,000, respectively. Additionally, for the year ended December 31, 2018, 2017 and 2016, 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 $0, $21,000 and $378,000, respectively.

Unrecognized compensation expense for nonvested stock options totaled $14,000 at December 31, 2018 and is expected to be recognized over the remaining weighted-average vesting period of 2.8 years. The total intrinsic value of options exercised for the year ended December 31, 2018, 2017 and 2016 was $395,000, $268,000, and $2.5 million, respectively.

Stock option activity for the year ended December 31, 2018 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, 2018	43,077		$	21.00
Granted	1,000		42.44
Exercised	(15,975	)	19.64
Forfeited	(750	)	22.40
Expired	—		—
Options outstanding at December 31, 2018	27,352		$	22.53	3.4	$	374
Options exercisable at December 31, 2018	24,252		$	21.44	2.9	$	352

A summary of the status of the Company’s nonvested stock options as of December 31, 2018 and changes during the year then ended was as follows:



	Options		Weighted-Average Grant Date Fair Value per Option
Nonvested at January 1, 2018	3,450		$	6.11
Granted	1,000		7.78
Vested	(1,350	)	6.85
Forfeited	—		—
Nonvested at December 31, 2018	3,100		$	6.32

For the year ended December 31, 2018, 2017 and 2016 the Company received cash from the exercise of stock options of $218,000, $98,000 and $1.3 million respectively.

Restricted Stock Units

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.

For the year ended December 31, 2018, 2017 and 2016, the Company issued restricted stock units with a grant-date fair value of $887,000, $808,000 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.

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,
	2018		2017		2016
Compensation expense	$	263	$	124	$	—
Income tax benefit	57		27		—
Fair value of grants vested	149		—		—

Restricted stock unit activity for the year ended December 31, 2018 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, 2018	17,477		$	43.04
Granted	19,695		45.06
Vested	(3,455	)	43.04
Forfeited	(3,492	)	44.13
Nonvested at December 31, 2018	30,225		$	44.23	3.7	$	1,087	$	1,090

Restricted Stock Awards

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 vest immediately, and may contain certain performance-based conditions. Nonvested restricted stock awards participate in Company dividends and recipients are entitled to vote these restricted shares during the vesting period.

For the year ended December 31, 2018, 2017 and 2016, the Company issued restricted stock awards with a grant-date fair value of $753,000, $686,000 and $925,000, 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.

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,
	2018		2017		2016
Compensation expense	$	916	$	762	$	703
Income tax benefit	197		164		246
Fair value of grants vested	931		702		603

Restricted stock award activity for the year ended December 31, 2018 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, 2018	36,325		$	32.56
Granted	17,033		44.19
Vested	(26,527	)	35.11
Forfeited	(4,050	)	32.96
Nonvested at December 31, 2018	22,781		$	38.21	1.8	$	819	$	531

MSPP

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 participate in Company dividends and are entitled to vote these restricted shares during the vesting period.

For the year ended December 31, 2018, 2017 and 2016, the Company issued MSPP awards with a grant-date fair value of $139,000, $111,000 and $128,000, respectively, to certain employees.

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,
	2018		2017		2016
Compensation expense	$	104	$	97	$	102
Income tax benefit	22		21		36
Fair value of grants vested	130		91		57

MSPP award activity for the year ended December 31, 2018 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, 2018	20,219		$	9.77
Granted	9,372		14.85
Vested	(15,207	)	8.56
Forfeited	(1,371	)	14.34
Nonvested at December 31, 2018	13,013		$	14.35	0.8	$	84	$	71

For the year ended December 31, 2018, 2017 and 2016 the Company received cash from the issuance of restricted shares under the MSPP of $232,000, $180,000 and $241,000, respectively. At December 31, 2018 and 2017, MSPP cash received from certain participating employees totaled $384,000 and $421,000, respectively, and was presented within accrued interest and other liabilities on 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 granted are 50% weighted on the attainment of certain performance targets on specific performance measures determined 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 awards are restricted stock awards and vest annually pro-rata over a three year period. The associated service-based awards for the LTIP have been included within the Restricted Stock Awardsdiscussion above.

For the year ended December 31, 2018, 2017 and 2016, the Company issued performance-based stock awards with a grant-date fair value of $663,000, $697,000 and $502,000, 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 and the related tax benefit for the LTIP's performance-based awards was as follows for the periods indicated:



	For The Year Ended December 31,
	2018		2017		2016
Compensation expense	$	291	$	370	$	1,080
Related income tax benefit	63		80		378
Fair value of grants vested	284		843		725

LTIP performance-based award activity for the year ended December 31, 2018 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, 2018	31,623		$	35.60
Granted	14,886		44.56
Vested	(9,844	)	28.87
Forfeited	(10,288	)	32.75
Nonvested at December 31, 2018	26,377		$	44.28	1.7	$	949	$	314

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. For all active participants vesting occurs ratably from the date of participation until the participant reaches the age of 65, at which time the participant is 100% vested. In January 2018, the DCRP was amended providing the ability to tailor vesting terms for new participants.

For the year ended December 31, 2018, 2017 and 2016, the Company issued DCRP awards with a grant-date fair value of $155,000, $118,000 and $111,000, 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 and the related tax benefit recognized in connection with the DCRP was as follows for the periods presented:



	For The Year Ended December 31,
	2018		2017		2016
Compensation expense	$	106	$	97	$	81
Related income tax benefit	23		21		28
Fair value of grants vested	105		90		75

DCRP award activity for the year ended December 31, 2018 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, 2018	10,048		$	25.52
Granted	3,434		45.23
Vested	(2,899	)	36.46
Forfeited	(613	)	41.56
Nonvested at December 31, 2018	9,970		$	28.16	10.9	$	359	$	251