SHARE-BASED COMPENSATION PLANS

The Company maintains share-based compensation plans under the shareholder-approved 2011 Plan. The purpose of the share-based compensation plans is to provide officers, employees, and non-employee members of the Board of Directors of the Company with additional incentive to further the success of the Company, and awards may consist of grants of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock, deferred stock units and performance shares. All employees and members of the Board of Directors of the Company and its subsidiaries are eligible to participate in the 2011 Plan. The 2011 Plan allows for the Compensation Committee of the Board of Directors to determine the type of incentive to be awarded, its term, manner of exercise, vesting and restrictions on shares. Generally, awards are nonqualified under the IRC, unless the awards are deemed to be incentive awards to employees at the Compensation Committee’s discretion.

At December 31, 2024, 1,281,920 shares of the common stock of the Company were reserved to be issued and 109,773 shares were available to be issued.

The following table presents a summary of nonvested restricted shares activity for 2024:


	Shares	Weighted Average Grant Date Fair Value

Nonvested shares, beginning of year	291,231	$	22.85
Granted	333,687	27.50
Forfeited	(20,221)	26.39
Vested	(340,369)	24.18
Nonvested shares, end of year	264,328	$	26.73

The following table presents restricted shares compensation expense, with tax benefit information, and fair value of shares vested at December 31, 2024, 2023 and 2022:


	2024		2023		2022

Restricted share award expense	$	8,616	$	2,349	$	2,012
Restricted share award federal tax benefit	1,809		493		423
Fair value of shares vested	9,658		2,460		2,498

At December 31, 2024, 2023 and 2022, unrecognized compensation expense related to the share awards totaled $3.6 million, $3.4 million, and $3.0 million, respectively. The unrecognized compensation expense at December 31, 2024 is expected to be recognized over a weighted-average period of 1.2 years. Pursuant to the terms of the 2011 Plan, upon completion of the Merger on July 1, 2024, the Company accelerated the vesting of time-based restricted stock awards totaling 198,462 shares with compensation expense of $4.0 million, which is included in merger-related expenses.

The following table presents the summary of stock option activity as of December 31, 2024. The Company assumed the stock options from the Merger. The weighted average of remaining contractual term of shares exercisable is 1.9 years.


	Shares	Weighted Average Exercise Price
Outstanding at June 30, 2024	—	$	—
Assumed from Merger	80,227	21.96

Exercised	(28,139)	20.20

Expired	(2,081)	17.64
Outstanding at end of period	50,007	23.13
Fully vested and expected to vest	50,007	23.13
Exercisable, at period end	50,007	$	23.13

The following table presents information about stock options exercised for the year ended December 31, 2024:


	December 31, 2024


Total intrinsic value of options exercised	$	474
Cash received from options exercised	568
Tax benefit realized from stock options exercised	72

The Company maintains an employee stock purchase plan to provide employees of the Company an opportunity to purchase Company common stock. Eligible employees may purchase shares in an amount that does not exceed the lesser of the IRS limit of $25,000 or 10% of their annual salary at the lower of 95% of the fair market value of the shares on the semi-annual offering date, or related purchase date. The Company reserved 350,000 shares of its common stock to be issued under the employee stock purchase plan. At December 31, 2024, 127,727 shares were available to be issued.

The following table presents information for the employee stock purchase plan for years ended December 31, 2024, 2023 and 2022:


	2024		2023		2022
Shares purchased	11,419		6,449		5,885
Weighted average price of shares purchased	$	23.66	$	21.14	$	22.53
Compensation expense recognized	$	103	$	7	$	15

The Company issues new shares or treasury shares, depending on market conditions, in its share-based compensation plans.

About Stock Compensation Disclosures

Stock-based compensation disclosures detail the equity awards granted to employees and executives — including stock options, restricted stock units (RSUs), and performance shares — along with the valuation methods and assumptions used to expense them. This section reveals the true cost of talent retention and the alignment between management incentives and shareholder interests.

Key signals: total unrecognized compensation expense and its expected recognition period signal future earnings headwinds from already-granted awards. For stock options, examine Black-Scholes assumptions — expected volatility, risk-free rate, and expected term — as understating any of these reduces reported compensation expense. Compare stock compensation expense as a percentage of revenue against peers to assess dilution cost. Watch vesting schedules for acceleration clauses tied to change-of-control events. Performance-based awards with undemanding targets may indicate weak governance. Add back stock compensation to operating cash flow to calculate a more conservative free cash flow figure.

ORRSTOWN FINANCIAL SERVICES INC Stock Compensation Disclosure

About Stock Compensation Disclosures

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