QNB sponsors stock-based compensation plans, administered by a Board committee (the Committee), under which both qualified and non-qualified stock options may be granted periodically to certain employees. Compensation cost has been measured using the fair value of an award on the grant date and is recognized over the service period, which is usually the vesting period.

Stock-based compensation expense was $24,000 and $26,000 for the three months ended September 30, 2019 and 2018, respectively. Stock-based compensation expense was $84,000 and $84,000 for the nine months ended September 30, 2019 and 2018, respectively. As of September 30, 2019, there was approximately $143,000 of unrecognized compensation cost related to unvested share-based compensation award grants that is expected to be recognized over the next 29 months.

Options are granted to certain employees at prices equal to the market value of the stock on the date the options are granted. The 2005 Plan authorized the issuance of 200,000 shares. The time period during which any option is exercisable under the 2005 Plan is determined by the Committee but shall not commence before the expiration of nine months after the date of grant or continue beyond the expiration of five years after the date the option is awarded. The granted options vest after a three-year period. As of September 30, 2019, there were 184,200 options granted, 65,850 options forfeited, 104,200 options exercised, and 14,150 options outstanding under this Plan. The 2005 Plan expired on March 15, 2015.

The 2015 Plan authorizes the issuance of 300,000 shares. The terms of the 2015 Plan are identical to the 2005 Plan. There were 98,200 options granted, 2,600 options forfeited, 250 options exercised and 93,350 options outstanding under the 2015 Plan as of September 30, 2019. The 2015 Plan expires on February 24, 2025.

The fair value of each option is amortized into compensation expense on a straight-line basis between the grant date for the option and each vesting date. QNB estimated the fair value of stock options on the date of the grant using the Black-Scholes option pricing model. The model requires the use of assumptions.

The following assumptions were used in the option pricing model in determining the fair value of options granted during the period:

The risk-free interest rate was selected based upon yields of U.S. Treasury securities with a term approximating the expected life of the option being valued. Historical information was the basis for the selection of the expected dividend yield, expected volatility and expected lives of the options.

The fair market value of options granted in the nine months of 2019 and 2018 was $3.96 and $5.29, respectively.

Stock option activity during the nine months ended September 30, 2019 and 2018 is as follows:

	Number of options			Weighted average exercise price		Weighted average remaining contractual term (in years)		Aggregate intrinsic value
Outstanding at December 31, 2018		95,075		$	35.11
Granted		24,700			38.15
Exercised		(8,775	)		25.64
Forfeited		(1,500	)		37.20
Outstanding at September 30, 2019		109,500		$	36.53		2.34	$	357
Exercisable at September 30, 2019		36,350		$	29.95		0.72	$	318

	Number of options			Weighted average exercise price		Weighted average remaining contractual term (in years)		Aggregate intrinsic value
Outstanding at December 31, 2017		85,525		$	30.94
Granted		25,000			43.60
Exercised		(10,000	)		24.86
Forfeited		(1,600	)		32.52
Outstanding at September 30, 2018		98,925		$	34.73		2.74	$	1,105
Exercisable at September 30, 2018		26,525		$	27.46		0.90	$	489