STOCK OPTIONS

In 2014, the Company adopted the 2014 Equity Incentive Plan designed to help the Company attract, retain, and motivate employees and non-employee directors. Incentive stock options, non-qualified stock options, and restricted stock may be granted as part of the plan.

On August 27, 2015, the Company issued 38,750 stock options with a strike price of $42.03 to employees that have a five year vesting period and expire ten years from the grant date. On March 24, 2017, the Company issued 70,000 stock options with a strike price of $44.21 to employees. The options granted in 2017 all expire ten years from the grant date; however, of the 70,000 grants awarded, 46,250 of the options have a three year vesting period while the remaining 23,750 options vest in five years.

A summary of stock option activity for the year ended December 31, 2017 is presented below:



	Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value
Outstanding at December 31, 2014	—		$	—	—	$	—
Granted	38,750		42.03		9.67
Exercised	—		—
Forfeited	(4,000	)	42.03
Expired	—		—
Outstanding at December 31, 2015	34,750		42.03		9.67	14,943
Granted	—		—
Exercised	—		—
Forfeited	(8,250	)	42.03
Expired	—		—
Outstanding at December 31, 2016	26,500		42.03		8.66	224,455
Granted	70,000		44.21		9.23
Exercised	—		—
Forfeited	(3,000	)	44.21
Expired	—		—
Outstanding at December 31, 2017	93,500		$	43.59	8.79	$	279,365

Options exercisable at December 31, 2017	—		$	—	—	$	—

On December 31, 2017, a total of 93,500 options were outstanding. Outstanding options at December 31, 2017 and the related vesting schedules are summarized below:



Stock Options Granted
Date	Shares	Forfeited		Outstanding	Strike Price		Vesting Period	Expiration
March 24, 2017	46,250	(3,000	)	43,250	$	44.21	3 years	10 years
March 24, 2017	23,750	—		23,750	44.21		5 years	10 years
August 27, 2015	38,750	(12,250	)	26,500	42.03		5 years	10 years

The fair value of stock options is estimated using the Black-Scholes option pricing model. The following is a summary of the assumptions used in this model for the stock options granted during 2017 and 2015 (no options were issued during 2016):



	2017			2015
Risk-free interest rate	1.90		%	1.63		%
Expected volatility	27.63		%	31.58		%
Expected dividend yield	4.20		%	4.22		%
Expected life	6.84 years			7.51 years
Weighted average grant date fair value per option	$	0.75		$	3.96

The estimated fair value of options, including the effect of estimated forfeitures, is recognized as expense on a straightline basis over the options’ vesting periods while ensuring that the cumulative amount of compensation cost recognized at least equals the value of the vested portion of the award at that date. The Company determines the fair value of options granted using the Black-Scholes option-pricing model. The risk-free interest rate is based on the United States Treasury bond with a similar term to the expected life of the options at the grant date. Expected volatility was estimated based on the adjusted historic volatility of the Company’s shares. The expected life was estimated to equal the contractual life of the options. The dividend yield rate was based upon recent historical dividends paid on shares.

For the years ended December 31, 2017 and 2016, there was $29,000 and $19,000 in total share-based compensation expense, respectively. The compensation expense is recorded as part of the non-interest expenses in the Consolidated Statement of Income.

As at December 31, 2017, total unrecognized compensation costs related to non-vested options was $99,000 which is expected to be recognized over a period of 2.91 years.