We measure all share-based compensation to employees, including grants of stock options and restricted stock units, and use a fair-value-based method for the recording of related compensation expense in our results of operations. In determining the expense we record for stock options granted to directors and employees of our subsidiaries and affiliates, we estimate the fair value of each option award on the date of grant using the Black-Scholes option pricing model. The significant assumptions we utilize in applying the Black-Scholes option pricing model are the risk-free interest rate, the expected term, the dividend yield and the expected volatility.

We historically granted stock options on an annual basis at our December board meeting, which occurs in the middle of December. At its December 18, 2025 board meeting, our board of directors approved the recommendation of the compensation committee to change the form of equity awards we issue on an annual basis from stock options to restricted stock units and to delay issuance until the first day of the next calendar year. Accordingly, on January 1, 2026, we granted 115,500 restricted stock units to our officers and the officers of Donegal Mutual that will vest in three equal annual installments. We plan to grant restricted stock units on January 1 of each year. This practice will allow vesting under each grant to occur on the same date and for the value of the shares our officers and the officers of Donegal Mutual receive upon vesting of multiple grants to be calculated consistently using the closing price of Class A common stock on the last trading day of the preceding year.

We recorded compensation expense related to our stock compensation plans of $323,267 and $300,056 for the three months ended June 30, 2026 and 2025, respectively, with a corresponding income tax benefit of $67,887 and $63,011, respectively. We recorded compensation expense related to our stock compensation plans of $650,126 and $596,992 for the six months ended June 30, 2026 and 2025, respectively, with a corresponding income tax benefit of $136,526 and $125,368, respectively. At June 30, 2026, we had $1.7 million of unrecognized compensation expense related to nonvested share-based compensation granted under our stock compensation plans that we expect to recognize over a weighted average period of approximately 2.2 years.

We received cash from option exercises under our stock compensation plans during the three months ended June 30, 2026 and 2025 of $79,597 and $5.8 million, respectively. We received cash from option exercises under our stock compensation plans during the six months ended June 30, 2026 and 2025 of $311,927 and $12.1 million, respectively.We realized actual tax benefits for the tax deductions related to those option exercises of $3,910 and $476,276 for the three months ended June 30, 2026 and 2025, respectively. We realized actual tax benefits for the tax deductions related to those option exercises of $17,010 and $777,257 for the six months ended June 30, 2026 and 2025, respectively.