The shareholders of the Company approved the Provident Bancorp, Inc. 2020 Equity Incentive Plan (the “2020 Equity Plan”) on November 23, 2020, which is in addition to the Provident Bancorp, Inc. 2016 Equity Incentive Plan (the “2016 Equity Plan”), (collectively called the “Equity Incentive Plans”). Under the Equity Incentive Plans, the Company may grant options, restricted stock, restricted units or performance awards to its directors, officers and employees. Both incentive stock options and non-qualified stock options may be granted under the Equity Incentive Plans, with 902,344 and 1,021,239 shares reserved for options under the 2016 Equity Plan and 2020 Equity Plan, respectively. The exercise price of each option equals the market price of the Company’s stock on the date of grant and the maximum term of each option is ten years. The total number of shares reserved for restricted stock or restricted units is 360,935 and 408,495 under the 2016 Equity Plan and 2020 Equity Plan, respectively. The value of restricted stock grants is based on the market price of the stock on grant date. Options and awards vest ratably over 3 to 5 years.

Expense related to options and restricted stock granted to directors is recognized in directors’ compensation within non-interest expense.

The fair value of each option is estimated on the date of the grant using the Black-Scholes option-pricing model with the following assumptions:

Expected volatility is based on historical volatility because the Company’s common stock price.

Expected life represents the period of time that the option is expected to be outstanding, taking into account the contractual term, and the vesting period.

The dividend yield assumption is based on the Company’s expectation of dividend payouts.

The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant for a period equivalent to the expected life of the option.

The fair value of options granted was determined using the following weighted-average assumptions as of grant date:



	2022
Vesting period (years)		5
Expiration date (years)		10
Expected volatility		33.70%
Expected life (years)		7.5
Expected dividend yield		0.94%
Risk free interest rate		2.01%
Fair value per option	$	6.04

A summary of the status of the Company’s stock option grants for the six months ended June 30, 2022 is presented in the table below:



	Stock Option Awards		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (years)		Aggregate Intrinsic Value
Outstanding at December 31, 2021		1,558,963	$	10.72
Granted		68,150		17.00
Forfeited		—		—
Exercised		(50,877)		9.94
Outstanding at June 30, 2022		1,576,236	$	11.01		6.96	$	7,476,000
Outstanding and expected to vest at June 30, 2022		1,576,236	$	11.01		6.96	$	7,476,000
Vested and Exercisable at June 30, 2022		805,038	$	9.62		5.44	$	4,895,000
Unrecognized compensation cost	$	2,777,000
Weighted average remaining recognition period (years)		3.53

For the three months ended June 30, 2022 and 2021, total expense for the stock options was $218,000 and $304,000, respectively. For the six months ended June 30, 2022 and 2021, total expense for the stock options was $426,000 and $576,000, respectively.

Shares issued upon the granting of restricted stock may be either authorized but unissued shares or reacquired shares held by the Company. Any shares forfeited because vesting requirements are not met will again be available for issuance under the Equity Plan. The fair market value of shares awarded, based on the market prices at the date of grant, is recorded as unearned compensation and amortized over the applicable vesting period.

The following table presents the activity in restricted stock awards under the Equity Plan for the six months ended June 30, 2022:



	Unvested Restricted Stock Awards		Weighted Average Grant Date Price
Unvested restricted stock awards at December 31, 2021		277,925	$	12.15
Granted		29,920		16.89
Forfeited		—		—
Vested		(11,610)		14.82
Unvested restricted stock awards at June 30, 2022		296,235	$	12.53
Unrecognized compensation cost	$	3,220,000
Weighted average remaining recognition period (years)		3.55

For the three months ended June 30, 2022 and 2021, total expense for the restricted stock awards was $250,000 and $370,000, respectively. For the six months ended June 30, 2022 and 2021, total expense for the restricted stock awards was $487,000 and $702,000, respectively.