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 will 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 was granted. The exercise price of all options granted equaled the market price of the Company's stock on the date of grant, except for certain non-qualified stock options that were issued in conjunction with an acquisition.

The amount of cash used to settle stock-based compensation transactions for the year ended December 31, 2019, 2018 and 2017 was $455,000, $848,000 and $902,000, 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. Incentive stock options and non-qualified stock options granted vest pro-rata over a five year period, or earlier if an employee retires and has met the retirement eligibility requirements of the plan, 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, 2019, 2018 and 2017, the Company issued stock options with a grant-date fair value of $0, $8,000 and $0, 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,
	2019	2018			2017
Weighted-average dividend yield	N/A	2.36		%	N/A
Weighted-average risk-free interest rate	N/A	2.38		%	N/A
Weighted-average expected volatility	N/A	22.80		%	N/A
Weighted-average expected life (in years)	N/A	5.3			N/A
Weighted-average fair value of options granted	N/A	$	7.78		N/A

Compensation expense is recognized on a straight-line basis over the vesting period. For the year ended December 31, 2019, 2018 and 2017, the compensation expense recognized was $7,000, $10,000 and $20,000, 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, 2019, 2018 and 2017 was $8,000, $50,000, and $21,000, respectively. Additionally, for the year ended December 31, 2019, 2018 and 2017, the Company received a tax benefit upon the exercise of non-qualified stock options, of $1,000, $0 and $7,000, respectively.

Stock option activity for the year ended December 31, 2019 was as follows:



(Dollars in thousands, except per option data)	Number of Options		Weighted-Average Exercise Price per Option		Weighted-Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value
Options outstanding at January 1, 2019	27,352		$	22.53
Granted	—		—
Exercised	(13,745	)	21.39
Forfeited	—		—
Expired	—		—
Options outstanding at December 31, 2019	13,607		$	23.69	3.3	$	304
Options exercisable at December 31, 2019	11,757		$	22.21	2.8	$	280

A summary of the status of the Company’s nonvested stock options as of December 31, 2019 and changes during the year then ended was as follows:



	Options		Weighted-Average Grant Date Fair Value per Option
Nonvested at January 1, 2019	3,100		$	6.32
Granted	—		—
Vested	(1,250	)	6.09
Forfeited	—		—
Nonvested at December 31, 2019	1,850		$	6.48

For the year ended December 31, 2019, 2018 and 2017, the Company received cash from the exercise of stock options of $95,000, $218,000 and $98,000 respectively.

Unrecognized compensation expense for nonvested stock options totaled $7,000 at December 31, 2019 and is expected to be recognized over the remaining weighted-average vesting period of 2.5 years. The total intrinsic value of options exercised for the year ended December 31, 2019, 2018 and 2017 was $309,000, $395,000, and $268,000, 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, 2019, 2018 and 2017, the Company issued restricted stock units with a grant-date fair value of $657,000, $887,000 and $808,000, 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,
(In thousands)	2019		2018		2017
Compensation expense	$	389	$	263	$	124
Income tax benefit	84		57		27
Fair value of grants vested	302		149		—

Restricted stock unit activity for the year ended December 31, 2019 was as follows:



(Dollars in thousands, except per unit data)	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, 2019	30,225		$	44.23
Granted	15,138		43.40
Vested	(6,854	)	44.12
Forfeited	(2,457	)	43.99
Nonvested at December 31, 2019	36,052		$	43.92	3.3	$	1,661	$	1,258

Restricted Stock Awards

Restricted stock awards vest pro-rata over the requisite service period, which is typically three to five years, or earlier if a recipient retires and has met the retirement eligibility requirements of the plan. Awards issued to Company directors 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, 2019, 2018 and 2017, the Company issued restricted stock awards with a grant-date fair value of $724,000, $753,000 and $686,000, 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,
(In thousands)	2019		2018		2017
Compensation expense	$	751	$	916	$	762
Income tax benefit	161		197		164
Fair value of grants vested	780		931		702

Restricted stock award activity for the year ended December 31, 2019 is as follows:



(Dollars in thousands, except per share data)	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, 2019	22,781		$	38.21
Granted	16,347		44.30
Vested	(19,420	)	40.16
Forfeited	(421	)	27.20
Nonvested at December 31, 2019	19,287		$	41.66	1.6	$	888	$	492

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 a portion of their annual incentive bonus. Restricted shares issued under the MSPP are granted at a discount of the fair market value of the stock on the date of grant and they cliff vest two years after the grant date, or earlier if a recipient reaches the retirement eligibility requirements of the Plan. 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, 2019, 2018 and 2017, the Company issued MSPP awards with a grant-date fair value of $85,000, $139,000 and $111,000, 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,
(In thousands)	2019		2018		2017
Compensation expense	$	95	$	104	$	97
Income tax benefit	20		22		21
Fair value of grants vested	75		130		91

MSPP award activity for the year ended December 31, 2019 was as follows:



(Dollars in thousands, except per share data)	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, 2019	13,013		$	14.35
Granted	7,741		11.01
Vested	(5,516	)	13.65
Forfeited	(223	)	14.23
Nonvested at December 31, 2019	15,015		$	12.89	0.7	$	219	$	57

For the year ended December 31, 2019, 2018 and 2017, the Company received cash from the issuance of restricted shares under the MSPP of $250,000, $232,000 and $180,000, respectively. At December 31, 2019 and 2018, cash received from certain participating employees totaled $472,000 and $384,000, 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 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 the performance targets are achieved, and the amount received by the LTIP participants may vary from 0% - 200% of target, depending on the level at which performance targets are met. 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 are disclosed within the aforementioned Restricted Stock Awardssection of this note.

For the year ended December 31, 2019, 2018 and 2017, the Company issued performance-based stock awards with a grant-date fair value of $624,000, $663,000 and $697,000, 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,
(In thousands)	2019		2018		2017
Compensation expense	$	532	$	291	$	370
Related income tax benefit	114		63		80
Fair value of grants vested	344		284		843

LTIP performance-based award activity for the year ended December 31, 2019 was as follows:



(Dollars in thousands, except per share data)	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, 2019	26,377		$	44.28
Granted	14,186		43.98
Vested	(7,811	)	43.99
Forfeited	(4,987	)	43.99
Nonvested at December 31, 2019	27,765		$	44.26	1.6	$	1,279	$	455

DCRP

The DCRP is an unfunded deferred compensation plan for the benefit of certain Company executives. 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 2018, the DCRP was amended providing the ability to tailor vesting terms for new participants.

For the year ended December 31, 2019, 2018 and 2017, the Company issued DCRP awards with a grant-date fair value of $153,000, $155,000 and $118,000, 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,
(In thousands)	2019		2018		2017
Compensation expense	$	110	$	106	$	97
Related income tax benefit	24		23		21
Fair value of grants vested	102		105		90

DCRP award activity for the year ended December 31, 2019 was as follows:



(Dollars in thousands, except per award data)	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, 2019	9,970		$	28.16
Granted	3,542		43.26
Vested	(2,861	)	35.74
Forfeited	—		—
Nonvested at December 31, 2019	10,651		$	31.14	10.3	$	491	$	255