Stock Options

9 Months Ended

Sep. 30, 2020

Share-based Payment Arrangement [Abstract]

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.

As of January 1, 2020, the Company had a total of 625,800 stock options outstanding. During the period ended September 30, 2020, the Company issued 238,500 stock options with a strike price of $25.34 to a group of employees. The options granted in 2020 all expire ten years from the grant date. Of the 238,500 grants awarded in 2020, 119,300 of the options vest in 3 years while the 119,200 remaining options vest in five years.


Stock Options Granted
Date	Shares	Forfeited	Outstanding	Strike Price		Vesting Period	Expiration
March 11, 2020	119,300	—	119,300	$	25.34	3 years	10 years
March 11, 2020	119,200	—	119,200	25.34		5 years	10 years
March 15, 2019	120,900	(1,950)	118,950	28.01		3 years	10 years
March 15, 2019	119,100	(1,800)	117,300	28.01		5 years	10 years
August 24, 2018	75,300	(1,950)	73,350	30.67		3 years	10 years
August 24, 2018	149,250	(4,050)	145,200	30.67		5 years	10 years
January 5, 2018	18,750	—	18,750	30.07		3 years	10 years
January 5, 2018	18,750	—	18,750	30.07		5 years	10 years
March 24, 2017	69,375	(6,750)	62,625	29.47		3 years	10 years
March 24, 2017	35,625	—	35,625	29.47		5 years	10 years
August 27, 2015	58,125	(22,875)	35,250	28.02		5 years	10 years

A summary of stock option activity is presented below:


	September 30, 2020			September 30, 2019
	Shares	Weighted Average Exercise Price		Shares	Weighted Average Exercise Price
Outstanding, beginning of year	625,800	$	29.29	395,550	$	30.08
Granted	238,500	25.34		240,000	28.01
Exercised	—	—		—	—
Forfeited	—	—		—	—
Expired	—	—		—	—
Outstanding, end of period	864,300	$	28.20	635,550	$	29.30

Exercisable, end of period	97,875	$	28.95	—	$	—

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.

Compensation expense for stock options is recognized using the fair value when the stock options are granted and is amortized over the options' vesting period. Compensation expense related to stock options was $239,000 and $675,000 for the three and nine months ended September 30, 2020 compared to $185,000 and $498,000 for the same period of 2019. As of September 30, 2020, a total of 97,875 stock options were exercisable and the weighted average years to expiration was 8.17 years years. The

fair value of options granted during the nine months ended September 30, 2020 was $1,343,000 or $5.63 per award. Total unrecognized compensation cost for non-vested options was $2,165,000 and will be recognized over their weighted average remaining vesting period of 1.45 years years.