Compensation cost is recognized for stock options and restricted stock awards issued to employees. Compensation cost is measured as the fair value of these awards on their date of grant. A Black-Scholes model is utilized to estimate the fair value of stock options, while the market price of the Company’s common stock at the date of grant is used as the fair value of restricted stock awards. Compensation cost is recognized over the required service period, generally defined as the vesting period for stock option awards and as the restriction period for restricted stock awards. For awards with graded vesting, compensation cost is recognized on a straight-line basis over the requisite service period for the entire award.

The expense recognition of employee stock option and restricted stock awards resulted in net expense of approximately $723,711 and $625,870 during the years ended December 31, 2018 and 2017, respectively.

All share and per common share amounts have been adjusted to reflect the Stock Split. Refer to Notes 1 and 21 for additional information.

Stock options:

In April 2002, the Company adopted a stock option plan. The plan provides for granting options to purchase shares of common stock to the directors and selected key employees of the Company and the Bank. The options granted to employees are intended to qualify as incentive stock options under Section 422 of the Internal Revenue Code. In August 2017, the Company’s stockholders approved an increase in the number of shares available for grant to 4,173,520, of which 542,215 are available for future grant at December 31, 2018. Option prices are equal to or greater than the estimated fair value of the common stock at the date of grant. Options outstanding vest over a four-year period, whereby 25% of the options become exercisable on each anniversary of the grant date.

Information with respect to options outstanding during the years ended December 31, 2018 and 2017 is as follows:



Stock Options Outstanding
	2018				2017
	Shares		Weighted Average Exercise Price		Shares		Weighted Average Exercise Price
Outstanding at beginning of year	1,363,444		$	8.01	1,599,976		$	6.36
Add: Granted	373,750		11.44		260,600		12.38
Less: Exercised	(230,894	)	5.67		(358,332	)	4.65
Less: Retired on exercise	(37,240	)	5.07		—		—
Less: Expired/cancelled/forfeited	(37,200	)	7.34		(138,800	)	5.87
Outstanding at end of year	1,431,860		$	9.38	1,363,444		$	8.01
Exercisable at end of year	643,610		$	7.78	644,472		$	6.47

The weighted average fair value of options granted during the years ended December 31, 2018 and 2017, was $2.56 and $2.68, respectively.

A summary of information about stock options outstanding is as follows:



Stock Option Summary
	Weighted Average Exercise Price		Average Remaining Life (years)	Outstanding Shares		Exercisable Shares
December 31, 2018
	$	6.63	1.0	283,886		268,886
	7.50		2.0	297,348		207,898
	8.50		3.0	222,276		103,176
	11.38		5.0	354,750		—
	12.38		4.0	266,600		63,650
	12.80		4.8	7,000		—
Total outstanding options	9.38		3.1	1,431,860		643,610
Intrinsic value on December 31, 2018				$	3,178,491	$	2,399,743

December 31, 2017
	$	5.00	1.0	211,952		211,952
	6.63		2.0	323,792		218,868
	7.50		3.0	328,900		154,100
	8.50		4.0	238,200		59,552
	12.38		5.0	260,600		—
Total outstanding options	8.01		2.6	1,363,444		644,472
Intrinsic value on December 31, 2017				$	5,951,363	$	4,271,277

The aggregate intrinsic value as presented in the preceding tables is calculated by determining the difference between the estimated fair value of the stock as of December 31, 2018 and 2017, and the exercise price of the option, then multiply by the number of options outstanding. Stock options with exercise prices greater than the estimated fair value of the stock are not included in this calculation.

At December 31, 2018, there was $1,382,842 of total unrecognized compensation expense related to stock options to be recognized over the next five years. At December 31, 2017, there was $996,283 of total unrecognized compensation expense related to nonvested stock options to be recognized over the next four years.

The intrinsic value of stock options exercised was $1.3 million and $1.2 million during the years ended December 31, 2018 and 2017, respectively.

The weighted average fair value of options granted during 2018 and 2017 were estimated using the Black-Scholes option-pricing model with the following weighted average assumptions:



Stock Option Pricing Assumptions
	2018	2017
Dividend yield	0.00%	0.00%
Risk free interest rate	2.53%	2.20%
Expected volatility	18.94%	18.94%
Expected life in years	5	5

Restricted stock:

The Company from time-to-time also grants shares of restricted stock to key employees. These awards help align the interests of these employees with the interests of the stockholders of the Company by providing economic value directly related to increases in the value of the Company’s stock. These awards typically hold service requirements over various vesting periods. The value of the stock awarded is established as the fair market value of the stock at the time of the grant. The Company recognizes expense, equal to the total value of such awards, ratably over the vesting period of the stock grants.

All restricted stock agreements are conditioned upon continued employment. Termination of employment prior to a vesting date, as described below, would terminate any interest in non-vested shares. All restricted shares will fully vest in the event of change in control of the Company.

Nonvested restricted stock for the years ended December 31, 2018 and 2017 is summarized in the following table.



Restricted Stock Summary
	2018				2017
	Shares		Weighted Average Grant-Date Fair Value		Shares		Weighted Average Grant-Date Fair Value
Nonvested at beginning of year	42,000		$	8.66	52,000		$	7.45
Add: Granted	12,000		12.38		10,000		12.38
Less: Vested	(16,000	)	7.50		(16,000	)	7.50
Less: Forfeited	—		—		(4,000	)	6.88
Nonvested at end of year	38,000		$	10.32	42,000		$	8.66

The vesting schedule of restricted shares as of December 31, 2018 is as follows:



Restricted Stock Vesting Schedule
Year		Shares
2019		18,500
2020		5,500
2021		5,500
2022		5,500
2023		3,000
		38,000

At December 31, 2018 there was $230 thousand of total unrecognized compensation expense related to nonvested restricted stock. At December 31, 2017, there was $244 thousand of total unrecognized compensation expense related to nonvested restricted stock.