Note 15 - Stock-based Compensation

3 Months Ended

Mar. 31, 2020

Notes to Financial Statements

Share-based Payment Arrangement [Text Block]

(15) Stock-Based Compensation

The fair value of all stock-based awards granted, net of estimated forfeitures, is recognized as compensation expense over the respective service period.

At Bancorp's 2015 Annual Meeting of Shareholders, shareholders approved the 2015 Omnibus Equity Compensation Plan and authorized the shares available from the expiring 2005 plan for future awards under the 2015 plan. In 2018, shareholders approved an additional 500,000 shares for issuance under the plan. As of March 31, 2020 there were 393,000 shares available for future awards. The 2005 Stock Incentive Plan expired in April 2015 and SARs granted under this plan expire as late as 2025. The 2015 Stock Incentive Plan has no defined expiration date.

SAR Grants – SARs granted have a vesting schedule of 20% per year and expire ten years after the grant date unless forfeited due to employment termination.

Fair values of SARs are estimated at the date of grant using the Black-Scholes option pricing model, a leading formula for calculating such value. This model requires the input of assumptions, changes to which can materially affect the fair value estimate. The following assumptions were used in SAR valuations at the grant date in each year:

Assumptions	2020			2019
Dividend yield		2.51	%		2.52	%
Expected volatility		20.87	%		20.40	%
Risk free interest rate		1.25	%		2.55	%
Expected life of SARs (in years)		7.1			7.2

Dividend yield and expected volatility are based on historical information for Bancorp corresponding to the expected life of SARs granted. Expected volatility is the volatility of underlying shares for the expected term calculated on a monthly basis. The risk free interest rate is the implied yield currently available on U.S. Treasury issues with a remaining term equal to the expected life of the awards. The expected life of SARs is based on actual experience of past like-term SARs. Bancorp evaluates historical exercise and post-vesting termination behavior when determining the expected life.

RSA Grants – RSAs granted to officers vest over five years. For all grants prior to 2015, grantees are entitled to dividend payments during the vesting period. For grants in 2015 and forward, forfeitable dividends are deferred until shares are vested. Fair value of RSAs is equal to the market value of the shares on the date of grant.

PSU Grants – PSUs vest based upon service and a three-year performance period, which begins January 1 of the first year of the performance period. Because grantees are not entitled to dividend payments during the performance period, the fair value of these PSUs is estimated based upon the market value of the underlying shares on the date of grant, adjusted for non-payment of dividends. Grants require a one year post-vesting holding period and the fair value of such grants incorporates a liquidity discount related to the holding period of 4.4% and 4.1% for 2020 and 2019.

RSU Grants – RSUs are only granted to non-employee directors, are time-based and vest 12 months after grant date. Because grantees are entitled to deferred dividend payments at the end of the vesting period, fair value of the RSUs equals market value of underlying shares on the date of grant.

In the first quarters of 2020 and 2019, Bancorp awarded 6,570 and 9,834 RSUs to non-employee directors of Bancorp with a grant date fair value of $270,000 and $247,000.

Bancorp utilized cash of $224,000 and $272,000 during the first three months of 2020 and 2019 for the purchase of shares upon the vesting of RSUs.

Bancorp has recognized stock-based compensation expense for SARs, RSAs and PSUs within compensation expense, and RSUs for directors within other non-interest expense, as follows:

	Three months ended March 31, 2020
(in thousands)	Stock Appreciation Rights			Restricted Stock Awards			Restricted Stock Units			Performance Stock Units			Total
Expense	$	90		$	325		$	67		$	335		$	817
Deferred tax benefit		(19	)		(68	)		(14	)		(71	)		(172	)
Total net expense	$	71		$	257		$	53		$	264		$	645

	Three months ended March 31, 2019
(in thousands)	Stock Appreciation Rights			Restricted Stock Awards			Restricted Stock Units			Performance Stock Units			Total
Expense	$	84		$	293		$	81		$	405		$	863
Deferred tax benefit		(18	)		(61	)		(17	)		(85	)		(181	)
Total net expense	$	66		$	232		$	64		$	320		$	682

Detail of unrecognized stock-based compensation expense follows:

(in thousands)	Stock
Year ended	Appreciation Rights		Restricted Stock Awards		Restricted Stock Units		Performance Stock Units		Total
Remainder of 2020	$	263	$	958	$	202	$	1,007	$	2,430
2021		304		1,094		1		952		2,351
2022		249		826		—		490		1,565
2023		174		582		—		—		756
2024		68		306		—		—		374
2025		9		29		—		—		38
Total estimated expense	$	1,067	$	3,795	$	203	$	2,449	$	7,514

The following table summarizes SARs activity and related information:

													Weighted
							Weighted				Weighted		average
							average		Aggregate		average		remaining
				Exercise			exercise		intrinsic		fair		contractual
(in thousands, except per share data)	SARs			price			price		value(1)		value		life (in years)
Outstanding, January 1, 2019		731		$14.02	-	$40.00	$	22.42	$	8,422	$	3.83		5.2
Granted		53		36.65	-	38.18		37.01		213		6.24
Exercised		(143	)	14.02	-	22.96		15.99		3,025		3.47
Forfeited		—			—			—		—		—
Outstanding, December 31, 2019		641		$14.02	-	$40.00	$	25.06	$	10,250	$	4.10		5.3
Outstanding, January 1, 2020		641		$14.02	-	$40.00	$	25.06	$	10,250	$	4.10		5.3
Granted		48		37.30	-	37.30		37.30		—		5.80
Exercised		(4	)	14.02	-	15.24		14.52		115		3.16
Forfeited		—			—			—		—		—
Outstanding, March 31, 2020		685		$15.24	-	$40.00	$	25.99	$	4,243	$	4.23		5.4
Vested and exercisable		490		$15.24	-	$40.00	$	21.69	$	4,191	$	3.60		4.1
Unvested		195		24.56	-	40.00		36.77		52		5.80		8.5
Outstanding, March 31, 2020		685		$15.24	-	$40.00	$	25.99	$	4,243	$	4.23		5.4
Vested at March 31, 2020		55		$22.96	-	$40.00	$	30.46	$	132	$	5.02

(1) - Intrinsic value for SARs is defined as the amount by which the current market price of the underlying stock exceeds the exercise or grant price.

The following table summarizes activity for RSAs granted to officers:

				Grant date
				weighted
(in thousands, except per share data)	RSAs			average cost
Unvested at January 1, 2019		110		$	32.09
Shares awarded		40			34.88
Restrictions lapsed and shares released		(40	)		28.74
Shares forfeited		(2	)		35.36
Unvested at December 31, 2019		108		$	34.31
Unvested at January 1, 2020		108		$	34.31
Shares awarded		36			39.30
Restrictions lapsed and shares released		(37	)		32.06
Shares forfeited		(1	)		36.87
Unvested at March 31, 2020		106		$	36.80

Shares expected to be awarded for PSUs granted to executive officers of Bancorp, the three-year performance period for which began January 1 of the award year, are as follows:

	Vesting				Expected
Grant	period		Fair		shares to
year	in years		value		be awarded
2018		3	$	31.54		50,352
2019		3		32.03		43,603
2020		3		32.27		45,577