Employee Benefit Plans

Stock Option Plans

The Company has incentive and nonqualified option plans, which allow for the grant of options to officers, employees and members of the Board of Directors. Grants under the Company's incentive and nonqualified option plans generally vest over 3 years and must be exercised within 10 years of the date of grant. Transactions under the Company’s stock option plans for 2019, 2018 and 2017 are summarized in the following table:



	Shares		Weighted average exercise price		Weighted average remaining contractual life in years	Aggregate intrinsic value
Outstanding at December 31, 2016	552,759		$	7.26	5.7	$	4,663,432
Options granted	47,100		16.37
Options exercised	(94,679	)	6.19
Options forfeited	—		—
Options expired	(607	)	11.48
Outstanding at December 31, 2017	504,573		$	8.31	5.7	$	5,772,843
Options granted	203,000		20.15
Options exercised	(115,962	)	4.97
Options forfeited	(7,433	)	15.47
Options expired	—		—
Outstanding at December 31, 2018	584,178		$	13.00	7.1	$	4,574,680
Options granted	96,000		21.31
Options exercised	(60,534	)	7.49
Options forfeited	(5,333	)	19.38
Options expired	—		—
Outstanding at December 31, 2019	614,311		$	14.78	6.9	$	4,783,402
Exercisable at December 31, 2019	372,794		$	11.16	5.6	$	4,254,086

On April 25, 2019, The Company adopted the 2019 Equity Compensation Plan providing for grants of up to 500,000 shares to be allocated between incentive and non-qualified stock options, restricted stock awards, performance units and deferred stock. The Plan replaced all previously approved and established equity plans then currently in effect. As of December 31, 2019, 41,000 options and 15,900 shares of restricted stock have been awarded from the plan leaving 443,100 shares available for future grants.

The fair values of the options granted during 2019, 2018 and 2017 were estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions:



	For the years ended December 31,
	2019			2018			2017
Number of options granted	96,000			203,000			47,100
Weighted average exercise price	$	21.31		$	20.15		$	16.37
Weighted average fair value of options	$	6.20		$	6.04		$	4.64
Expected life in years (1)	8.23			7.17			6.57
Expected volatility (2)	27.05		%	26.60		%	28.12		%
Risk-free interest rate (3)	2.21		%	2.61		%	2.18		%
Dividend yield (4)	1.37		%	1.23		%	1.15		%


(1)	The expected life of the options was estimated based on historical employee behavior and represents the period of time that options granted are expected to be outstanding.


(2)	The expected volatility of the Company’s stock price was based on the historical volatility over the period commensurate with the expected life of the options.


(3)	The risk-free interest rate is the U.S. Treasury rate commensurate with the expected life of the options on the date of grant.


(4)	The expected dividend yield is the projected annual yield based on the grant date stock price.

Upon exercise, the Company issues shares from its authorized but unissued common stock to satisfy the options. The following table presents information about options exercised during 2019, 2018 and 2017:



	For the years ended December 31,
	2019		2018		2017
Number of options exercised	60,534		115,962		94,679
Total intrinsic value of options exercised	$	792,446	$	1,949,853	$	1,073,474
Cash received from options exercised	453,326		576,119		509,047
Tax deduction realized from options exercised	238,407		548,104		438,514

The following table summarizes information about stock options outstanding and exercisable at December 31, 2019:



	Options outstanding				Options exercisable
Range of exercise prices	Options outstanding	Weighted average remaining contractual life (in years)	Weighted average exercise price		Options exercisable	Weighted average exercise price
$0.00 - $6.00	61,761	2.7	$	5.60	61,761	$	5.60
$6.01 - $12.00	193,517	5.2	8.70		193,517	8.70
$12.01 - $18.00	67,533	7.1	15.78		52,336	15.60
$18.01 - $24.00	291,500	8.8	20.54		65,180	20.16
Total	614,311	6.9	$	14.78	372,794	$	11.16

FASB ASC Topic 718, “Compensation - Stock Compensation,” requires an entity to recognize the fair value of equity awards as compensation expense over the period during which an employee is required to provide service in exchange for such an award (vesting period). Compensation expense related to stock options and the related income tax benefit for the years ended December 31, 2019, 2018 and 2017 are detailed in the following table:



	For the years ended December 31,
	2019		2018		2017
Compensation expense	$	606,626	$	478,733	$	283,823
Income tax benefit	175,315		134,572		115,942

As of December 31, 2019, unrecognized compensation costs related to nonvested share-based compensation arrangements granted under the Company’s stock option plans totaled approximately $1.1 million. That cost is expected to be recognized over a weighted average period of 2.0 years.

Restricted Stock Awards

Restricted stock is issued under the stock bonus program to reward employees and directors and to retain them by distributing stock over a period of time. Restricted stock awards granted to date vest over a period of 4 years and are recognized as compensation to the recipient over the vesting period. The awards are recorded at fair market value at the time of grant and amortized into salary expense on a straight line basis over the vesting period. The following table summarizes nonvested restricted stock activity for the year ended December 31, 2019:



	Shares		Average grant date fair value
Nonvested restricted stock at December 31, 2018	105,312		$	16.55
Granted	46,050		20.84
Canceled	(1,557	)	16.78
Vested	(41,065	)	14.40
Nonvested restricted stock at December 31, 2019	108,740		$	19.18

Restricted stock awards granted during the years ended December 31, 2019, 2018 and 2017 were as follows:



	For the years ended December 31,
	2019		2018		2017
Number of shares granted	46,050		47,550		38,400
Average grant date fair value	$	20.84	$	20.77	$	16.36

Compensation expense related to the restricted stock for the years ended December 31, 2019, 2018 and 2017 is detailed in the following table:



	For the years ended December 31,
	2019		2018		2017
Compensation expense	$	664,484	$	574,236	$	462,470
Income tax benefit	192,036		161,418		188,919

As of December 31, 2019, there was approximately $1.6 million of unrecognized compensation cost related to nonvested restricted stock awards granted under the Company’s stock incentive plans. That cost is expected to be recognized over a weighted average period of 2.7 years.

401(k) Savings Plan

The Bank has a 401(k) savings plan covering substantially all employees. Under the Plan, an employee can contribute up to 80 percent of their salary on a tax deferred basis. The Bank may also make discretionary contributions to the Plan. The Bank contributed $648 thousand, $601 thousand and $492 thousand to the Plan in 2019, 2018 and 2017, respectively.

Deferred Fee Plan

The Company has a deferred fee plan for Directors and executive management. Directors of the Company have the option to elect to defer up to 100 percent of their respective retainer and Board of Director fees, and each member of executive management has the option to elect to defer 100 percent of their year end cash bonuses. Director and executive deferred fees totaled $379 thousand in 2019, $297 thousand in 2018 and $149 thousand in 2017, and the interest paid on deferred balances totaled $107 thousand in 2019, $67 thousand in 2018 and $44 thousand in 2017. The fees distributed on the deferred balances totaled $14 thousand in 2019 and 2018 and $8 thousand in 2017.

Benefit Plans

In addition to the 401(k) savings plan which covers substantially all employees, in 2015 the Company established an unfunded supplemental defined benefit plan to provide additional retirement benefits for the President and Chief Executive Officer (“CEO”) and certain key executives.

On June 4, 2015, the Company approved the Supplemental Executive Retirement Plan (“SERP”) pursuant to which the President and CEO is entitled to receive certain supplemental nonqualified retirement benefits. The Retirement Benefit shall be an amount equal to sixty percent (60%) of the average of the Executive's base salary for the thirty-six (36) months immediately preceding executive's separation from service after age 66, adjusted annually thereafter by two percent (2%). The total benefit is to be made payable in fifteen annual installments. The future payments are estimated to total $6.6 million. A discount rate of four percent (4%) was used to calculate the present value of the benefit obligation.

The President and CEO commenced vesting to this retirement benefit on January 1, 2014, and it will vest an additional three percent (3%) each year until fully vested on January 1, 2024. In the event that the President and CEO’s separation from service from the Company were to occur prior to full vesting, the President and CEO would be entitled to and shall be paid the vested portion of the retirement benefit calculated as of the date of separation from service. Notwithstanding the foregoing, upon a Change in Control, and provided that within 6 months following the Change in Control the President and CEO is involuntarily terminated for reasons other than “cause” or the President and CEO resigns for “good reason”, as such is defined in the SERP, or the President and CEO voluntarily terminates his employment after being offered continued employment in a position that is not a “Comparable Position”, as such is also defined in the SERP, the President and CEO shall become one hundred percent (100%) vested in the full retirement benefit.

No contributions or payments have been made for the year 2019, 2018 or 2017. The following table summarizes the components of the net periodic pension cost of the defined benefit plan recognized during the years ended December 31, 2019, 2018 and 2017:



	For the years ended December 31,
(In thousands)	2019		2018		2017
Service cost (1)	$	689	$	1,460	$	121
Interest cost	135		101		43
Amortization of prior service cost	83		83		83
Net periodic benefit cost	$	907	$	1,644	$	247

(1) On September 27, 2018, the Company approved a change in calculation of the Retirement Benefit resulting in an additional $1.1 million in current expense.

The following table summarizes the changes in benefit obligations of the defined benefit plan recognized during the years ended December 31, 2019, 2018 and 2017:



	For the years ended December 31,
(In thousands)	2019		2018		2017
Benefit obligation, beginning of year	$	2,747	$	1,187	$	1,023
Service cost (1)	689		1,460		121
Interest cost	135		101		43
Benefit obligation, end of year	$	3,571	$	2,747	$	1,187

(1) On September 27, 2018, the Company approved a change in calculation of the Retirement Benefit resulting in an additional $1.1 million in current expense.

On October 22, 2015, the Company entered into an Executive Incentive Retirement Plan (the “Plan”) with key executive officers. The Plan has an effective date of January 1, 2015.

The Plan is an unfunded, nonqualified deferred compensation plan. For any Plan Year, a guaranteed annual Deferral Award percentage of seven and one half percent (7.5%) of the participant’s annual base salary shall be credited to each Participant’s Deferred Benefit Account. A discretionary annual Deferral Award equal to seven and one half percent (7.5%) of the participant’s annual base salary may be credited to the Participant’s account in addition to the guaranteed Deferral Award, if the Bank exceeds the benchmarks set forth in the Annual Executive Bonus Matrix. The total Deferral Award shall never exceed fifteen percent (15%) of the participant's base salary for any given Plan Year. Each Participant shall be one hundred percent (100%) vested in all Deferral Awards as of the date they are awarded.

As of December 31, 2019, the Company had total expenses of $115 thousand, compared to $88 thousand in 2018 and $90 thousand in 2017. The Plan is reflected on the Company’s balance sheet as accrued expenses.

Certain members of management are also enrolled in a split-dollar life insurance plan with a post retirement death benefit of $250 thousand. Total expenses related to this plan were $5 thousand, $18 thousand and $5 thousand in 2019, 2018 and 2017, respectively.