Under the Provident Bancorp, Inc. 2016 Equity Incentive Plan (the "Equity Plan"), the Company may grant options, restricted stock, restricted units or performance awards to its directors, officers and employees. Both incentive stock options and non-qualified stock options may be granted under the Equity Plan, with the total shares reserved for options equaling 902,344. The exercise price of each option equals the market price of the Company’s stock on the date of grant and the term of each option is generally ten years. The total number of shares reserved for restricted stock or restricted units is 360,935. Options and other awards vest in equal annual installments on each anniversary of the date of the grant over the vesting period, which is typically three years to five years.

Expense related to options and restricted stock granted to directors is recognized in directors’ compensation within non-interest expense.

Stock Options

The fair value of each option is estimated on the date of the grant using the Black-Scholes option-pricing model with the following assumptions:

Volatility is based on peer group volatility because the Company does not have a sufficient trading history.

Expected life represents the period of time that the option is expected to be outstanding, taking into account the contractual term, and the vesting period.

The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant for a period equivalent to the expected life of the option.

The fair value of options granted in 2020 is based on the following assumptions:



	2020
Vesting period (years)		3
Expiration date (years)		10
Expected volatility		30.92%
Expected life (years)		7.5
Expected dividend yield		—%
Risk free interest rate		1.74%
Fair value per option	$	4.60

A summary of the status of the Company’s stock option grants for the nine months ended September 30, 2020 is presented in the table below:



	Stock Option Awards		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (years)		Aggregate Intrinsic Value
Outstanding at December 31, 2019		816,057	$	8.93
Granted		7,293		12.35
Forfeited		(9,844)		8.61
Exercised		—		—
Outstanding at September 30, 2020		813,506	$	8.96		6.20	$	—
Outstanding and expected to vest at September 30, 2020		813,506	$	8.96		6.20	$	—
Vested and Exercisable at September 30, 2020		470,914	$	8.77		6.02	$	—
Unrecognized compensation cost	$	584,000
Weighted average remaining recognition period (years)		1.52

For the three months ended September 30, 2020 and 2019, total expense for the stock options was $110,000 and $103,000, respectively. For the nine months ended September 30, 2020 and 2019, total expense for the stock options was $324,000 and $304,000, respectively.

Restricted Stock

Shares issued upon the granting of restricted stock may be either authorized but unissued shares or reacquired shares held by the Company. Any shares forfeited because vesting requirements are not met will again be available for issuance under the Equity Plan. The fair market value of shares awarded, based on the market prices at the date of grant, is recorded as unearned compensation and amortized over the applicable vesting period.

The following table presents the activity in restricted stock awards under the Equity Plan for the nine months ended September 30, 2020:



	Unvested Restricted Stock Awards		Weighted Average Grant Date Price
Unvested restricted stock awards at January 1, 2020		140,019	$	9.19
Granted		2,430		12.35
Forfeited		(3,938)		8.61
Vested		(1,965)		13.46
Unvested restricted stock awards at September 30, 2020		136,546	$	9.20
Unrecognized compensation cost	$	769,000
Weighted average remaining recognition period (years)		1.48

For the three months ended September 30, 2020 and 2019, total expense for the restricted stock awards was $147,000 and $142,000, respectively. For the nine months ended September 30, 2020 and 2019, total expense for the restricted stock awards was $436,000 and $451,000, respectively.