Note 6. Stock Incentive Plans

At the Annual Shareholders Meeting on May 21, 2014, shareholders approved the Virginia National Bankshares Corporation 2014 Stock Incentive Plan (“2014 Plan”). The 2014 Plan makes available up to 275,625 shares of the Company’s common stock, as adjusted by the 5% Stock Dividend and prior stock dividends, to be issued to plan participants. The 2014 Plan provides for granting of both incentive and nonqualified stock options, as well as restricted stock and other stock based awards. No new grants will be issued under the 2005 Plan as this plan has expired.

For all of the Company’s stock incentive plans (the “Plans”), the option price of incentive stock options will not be less than the fair value of the stock at the time an option is granted. Nonqualified stock options may be granted at prices established by the Board of Directors, including prices less than the fair value on the date of grant. Outstanding stock options generally expire in ten years from the grant date. Stock options generally vest by the fourth or fifth anniversary of the date of the grant.

A summary of the shares issued and available under each of the Plans is shown below as of June 30, 2019. Share data and exercise price range per share have been adjusted to reflect the 5% Stock Dividend. Although the 2005 Plan has expired and no new grants will be issued under this plan, there were options issued before the plan expired which are still outstanding as shown below.

	2005 Plan			2014 Plan
Aggregate shares issuable		253,575			275,625
Options or shares issued, net of forfeited and expired options		(59,870	)		(80,055	)
Cancelled due to Plan expiration		(193,705	)		-
Remaining available for grant		-			195,570

Grants issued and outstanding:
Total vested and unvested shares		1,379			67,415
Fully vested shares		1,379			13,182
Exercise price range	$	13.69 to		$	27.39 to
	$	13.69		$	42.62

The Company accounts for all of its stock incentive plans under recognition and measurement accounting principles which require that the compensation cost relating to stock-based payment transactions be recognized in the financial statements. Stock-based compensation arrangements include stock options and restricted stock. All stock-based payments to employees are required to be valued at a fair value on the date of grant and expensed based on that fair value over the applicable vesting period. For the six months ended June 30, 2019 and 2018, the Company recognized $47 thousand and $17 thousand, respectively, in compensation expense for stock options. As of June 30, 2019, there was $359 thousand in unrecognized compensation expense remaining to be recognized in future reporting periods through 2024.

Stock Options

Changes in the stock options outstanding related to all of the Plans are summarized below. Share and per share data have been adjusted to reflect the 5% Stock Dividend. (Dollars in thousands except per share data):

	June 30, 2019
			Weighted Average			Aggregate
	Number of Options		Exercise Price			Intrinsic Value
Outstanding at January 1, 2019	86,611		$	36.21
Issued	420			36.19
Exercised	(5,975	)		(17.04	)	$	120
Expired	(12,262	)		16.56
Outstanding at June 30, 2019	68,794		$	41.37		$	43

Options exercisable at June 30, 2019	14,561		$	39.49		$	33

The fair value of any stock option grant is estimated at the grant date using the Black-Scholes pricing model. Stock option grants for 420 and 65,888 shares, as adjusted for the 5% Stock Dividend, were issued during the first six months of 2019 and 2018, respectively. The fair value of each option granted in 2019 was estimated based on the assumptions noted in the following table:

	For the six months ended
	June 30, 2019
Expected volatility¹	16.88	%
Expected dividends²	3.24	%
Expected term (in years)³	6.50
Risk-free rate⁴	1.83	%

¹		Based on the monthly historical volatility of the Company’s stock price over the expected life of the options.

²		Calculated as the ratio of historical dividends paid per share of common stock to the stock price on the date of grant.

³		Based on the average of the contractual life and vesting period for the respective option.

⁴		Based upon an interpolated US Treasury yield curve interest rate that corresponds to the contractual life of the option, in effect at the time of the grant.

Summary information pertaining to options outstanding at June 30, 2019 is shown below. Share and per share data have been adjusted to reflect the 5% Stock Dividend.

	Options Outstanding				Options Exercisable
		Weighted-	Weighted-			Weighted-
	Number of	Average	Average		Number of	Average
	Options	Remaining	Exercise		Options	Exercise
Exercise Price	Outstanding	Contractual Life	Price		Exercisable	Price
$10.65 to $20.00	1,386	3.6 Years	$	13.70	1,386	$	13.70
$20.01 to $30.00	1,107	7.7 Years		27.39	4		26.18
$30.01 to $40.00	8,820	8.9 Years		39.36	1,680		39.52
$40.01 to $42.62	57,481	8.9 Years		42.62	11,491		42.62
Total	68,794	8.8 Years	$	41.37	14,561	$	39.49

Stock Grants

On February 20, 2019, a total of 11,535 shares of stock, as adjusted for the 5% Stock Dividend, were granted to non-employee directors and certain members of executive management for services to be provided during the year ending December 31, 2019. Based on the market price on February 20, 2019 of $36.72, as adjusted for the 5% Stock Dividend, the total expense for these shares will be $424 thousand which will be expensed over the twelve months of 2019 as those services are provided. For the six months ended June 30, 2019, $212 thousand of this total has been realized in stock grant expense. There were no stock grants issued during the year ended December 31, 2018.