The Company has an equity-based incentive plan, the Bay Banks of Virginia, Inc. 2013 Stock Incentive Plan (the “2013 Plan”), which provides for the grant of up to 385,000 shares of the Company’s common stock as awards to employees and members of the board of directors of the Company and its subsidiaries. Prior to shareholder approval of the 2013 Plan, the Company issued equity awards from several other shareholder-approved plans. As of December 31, 2018, there were 145,854 shares available for grant under the 2013 Plan.

Share-based compensation expense related to stock options and restricted stock granted under the 2013 Plan for the years ended December 31, 2018 and 2017 was $102 thousand and $199 thousand, respectively.

During 2018 there were five stock option grants with a total of 17,500 options issued, of which one immediately vested, one vests over one year, two vest over three years, and one was forfeited, compared to 86,790 options granted and fully-vested during 2017. Compensation expense for stock options is based on the estimated fair value of options granted using the Black-Scholes Model, amortized on a straight-line basis over the vesting period of the award. The expected volatility used in the Black-Scholes Model calculations is based on the historical volatility of the Company’s common stock price. The risk-free interest rates for the periods within the contractual life of the awards are based on the U.S. Treasury yield curve in effect at the time of the grant. The expected life is based on historical exercise experience, and the dividend yield assumption is based on the Company’s history and expectation of dividend payouts. The fair value of options granted during 2018 ranged from $1.73 to $2.09 per option share. The fair value of options granted during 2017 ranged from $1.50 to $1.93 per option share.

The following table presents the variables used in the Black-Scholes Model calculations of the fair value of the stock options for the periods presented.

	Weighted Average					Weighted Average Remaining		Aggregate
	Shares			Exercise Price		Contractual Life (in years)		Intrinsic Value (1)
Options outstanding and exercisable, January 1, 2017		218,300		$	6.35		6.00	$	378,288
Granted		86,790			10.08
Forfeited		(1,195	)		8.43
Exercised		(43,244	)		5.85
Expired		(9,625	)		13.76
Options outstanding and exercisable, December 31, 2017		251,026		$	7.43		6.73	$	753,229
Granted		17,500			9.97
Forfeited		(6,805	)		10.37
Exercised		(25,491	)		5.84
Expired		(9,459	)		11.20
Options outstanding, December 31, 2018		226,771		$	7.56		6.43	$	223,478
Options exercisable, December 31, 2018		214,271		$	7.42

(1)

The aggregate intrinsic value of a stock option in the table above represents the total pre-tax intrinsic value (the amount by which the current market value of the underlying stock exceeds the exercise price of the option) that would have been received by the option holders had all option holders exercised their options as of the respective years ended. This amount changes based on changes in the market value of the Company’s common stock.

During 2018 and 2017, the Company awarded 54,796 shares and 15,500 shares of restricted stock, respectively, for a total award value of $534 thousand and $131 thousand, respectively. As of December 31, 2018, 54,796 shares remain unvested and $392 thousand of compensation expense remains unrecognized. Of the 54,796 shares of restricted stock awarded in 2018, 15,000 shares were issued and outstanding as of December 31, 2018, while all of the 15,500 shares of restricted stock awarded in 2017 were issued and outstanding as of December 31, 2018 and 2017. The remaining 39,796 shares of restricted stock in 2018 were awarded pursuant to the Company’s long-term incentive plan (“LTIP”), which covers certain officers of the Company. One half of the LTIP restricted shares granted vest on a straight-line basis over a three-year period (“LTIP Time-based Shares”), while the other half vests at the end of a three-year period contingent on the Company’s achievement of financial goals (“LTIP Performance-based Shares”). The LTIP Time-based Shares are being expensed on a straight-line basis over the three-year vesting period, while the LTIP Performance-based Shares are being expensed on a straight-line basis over a three-year period and expense will be adjusted periodically based on projected achievement of the performance target. The value of the restricted stock awards was calculated by multiplying the fair market value of the Company’s common stock on the grant date by the number of shares awarded. Restricted stock carries voting and dividend rights, if any.