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 to a group of employees. Each option granted has a strike price of $42.03 and is exercisable after five years following the date of the grant of such options. The options expire ten years following the date of the grant of such options.

A summary of stock option activity is presented below:



	2015
	Shares		Weighted Average Exercise Price
Outstanding, beginning of year	—		—
Granted	38,750		$	42.03
Exercised	—		—
Forfeited	(4,000	)	42.03
Outstanding, end of year	34,750		$	42.03

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.

The following assumptions were used in determining the fair value of share options granted:



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

For the year ended December 31, 2015, recorded $19,000 in total share-based compensation expense. The compensation expense is recorded as part of the non-interest expenses in the Consolidated Statement of Income.

As at December 31, 2015, total unrecognized compensation costs related to non-vested options was $119,000 which is expected to be recognized over a period of 4.66 years.