NOTE 8 – STOCK-BASED COMPENSATION

The Company has outstanding awards under two stock-based compensation plans (collectively, the “Plans”), as described below. Total compensation cost that has been charged against income for those Plans totaled $99 and $290, respectively, for the three and nine months ended September 30, 2018 and $59 and $181, respectively, for the three and nine months ended September 30, 2017. The total income tax effect was $21 and $61, respectively, for the three and nine months ended September 30, 2018 and $20 and $62, respectively, for the three and nine months ended September 30, 2017. All exercise prices and share amounts have been restated for the 1-for-5.5 reverse stock split on August 20, 2018 (see Note 1).

The Plans are both stockholder-approved and authorize stock option grants and restricted stock awards to be made to directors, officers and employees. The 2003 Equity Compensation Plan (the “2003 Plan”), as amended and restated, provided an aggregate of 18,181 shares for stock option grants and restricted stock awards, of which up to 5,454 shares could be awarded in the form of restricted stock awards. The 2009 Equity Compensation Plan (the “2009 Plan”), which was approved by stockholders on May 21, 2009, replaced the 2003 Plan and provided for 36,363 shares, plus any remaining shares available to grant or that are later forfeited or expire under the 2003 Plan, to be made available to be issued as stock option grants, stock appreciation rights or restricted stock awards. On May 16, 2013, the Company’s stockholders approved the First Amendment to the 2009 Plan to increase the number of shares of common stock reserved for stock option grants and restricted stock awards thereunder to 272,727.

Stock Options:

The Plans permit the grant of stock options to directors, officers and employees of the Holding Company and CFBank. Option awards are granted with an exercise price equal to the market price of the Company’s common stock on the date of grant, generally have vesting periods ranging from one to three years, and are exercisable for ten years from the date of grant. Unvested stock options immediately vest upon a change of control.

The fair value of each option award is estimated on the date of grant using a closed form option valuation (Black-Scholes) model that uses the assumptions noted in the table below. Expected volatilities are based on historical volatilities of the Company’s common stock. The Company uses historical data to estimate option exercise and post-vesting termination behavior. Employee and management options are tracked separately. The expected term of options granted is based on historical data and represents the period of time that options granted are expected to be outstanding, which takes into account that the options are not transferable. The risk-free interest rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of the grant.

There were no options granted or exercised during the three and nine months ended September 30, 2018 and September 30, 2017 (unaudited).

A summary of stock option activity in the Plans for the nine months ended September 30, 2018 follows (unaudited):



	Shares	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)	Intrinsic Value
Outstanding at beginning of year	98,046	$	7.91
Expired	(72)		119.35
Cancelled or forfeited	(1,401)		11.42
Outstanding at end of period	96,573	$	7.78	4.7	$	758,466

Expected to vest	-	$	-	-	$	-

Exercisable at end of period	96,573		7.78	4.7	$	758,466

During the nine months ended September 30, 2018, there were 72 stock options that expired. There were 54 stock options that expired during the nine months ended September 30, 2017. During the nine months ended September 30, 2018, there were 1,401 cancelled or forfeited stock options compared to 545 for the nine months ended September 30, 2017. As of September 30, 2018, all stock options granted under the Plans were vested.

Restricted Stock Awards:

The Plans permit the grant of restricted stock awards to directors, officers and employees. Compensation is recognized over the vesting period of the awards based on the fair value of the stock at grant date. The fair value of the stock is determined using the closing share price on the date of grant and shares generally have vesting periods of one to three years.

There were 727 shares of restricted stock granted during the nine months ended September 30, 2018. There were no shares of restricted stock issued during the nine months ended September 30, 2017.

A summary of changes in the Company’s nonvested restricted stock awards as of September 30, 2018 follows (unaudited):



Nonvested Shares	Shares	Weighted Average Grant-Date Fair Value
Nonvested at January 1, 2018	84,483	$	11.16
Granted	727		13.42
Forfeited	(7,999)		11.79
Nonvested at September 30, 2018	77,211	$	11.12

As of September 30, 2018 and 2017, the unrecognized compensation cost related to nonvested restricted stock awards granted under the Plans was $544 and $439, respectively.

There were 7,999 shares of restricted stock forfeited during the nine-month period ended September 30, 2018. There were 2,606 shares of restricted stock forfeited during the nine months ended September 30, 2017. There were no shares of restricted stock that vested during the nine months ended September 30, 2018 and 2017.

There were 70,457 shares of common stock remaining available for stock option grants and restricted stock awards under the 2009 Plan at September 30, 2018.