NOTE 18 – Stock-Based Compensation

Compensation cost is recognized for stock options and restricted stock awards issued to employees and non-employee directors. 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 and restricted stock awards.

The Company’s 2000 and 2010 stock incentive programs are long-term retention programs intended to attract, retain, and provide incentives for key employees and non-employee directors in the form of incentive and non-qualified stock options and restricted stock.

Stock-based compensation expense was recorded as follows:


	For the years ended December 31,
(dollars in thousands)	2014		2013	2012
Stock option expense	$	430	427	311
Restricted stock grant expense		199	88	31
Total stock-based compensation expense		629	515	342

Stock Options
On March 21, 2000, the Company adopted a stock option plan under which the Board could grant up to 436,424 options at an option price per share not less than the fair market value on the date of grant. The options expire 10 years from the grant date, but expired or forfeited options may be reissued. Under the terms of the Plan any awards remaining and granted after March 2010 are accounted for as non-qualified stock options. As of January 2011, all available options under the Plan had been granted.

On May 18, 2010, the Company adopted the 2010 Incentive Plan, making available for issuance 366,025 stock options (adjusted for the 10% stock dividends in 2013, 2012, and 2011). The options may be exercised at an option price per share based on the fair market value and determined on the date of grant and expire 10 years from the grant date. On May 20, 2014, the Company amended the 2010 Incentive Plan to add an additional 200,000 shares of common stock to be issuable as stock options, for a total of 566,025 shares.

A summary of the status of the stock option plan and changes for the period (adjusted for the stock dividends in 2012, and 2013) are presented below:


	For the years ended December 31,
	2014					2013					2012
					Weighted					Weighted					Weighted
			Weighted		Average			Weighted		Average			Weighted		Average
			average		Remaining			average		Remaining			average		Remaining
			exercise		Contractual			exercise		Contractual			exercise		Contractual
	Shares		price		Life	Shares		price		Life	Shares		price		Life
Outstanding at beginning of
year	617,181		$	7.05		556,474		$	6.72		455,698		$	6.76
Granted	82,550			13.44		90,300			9.05		120,615			6.31
Exercised	(39,752	)		8.94		(28,596	)		6.49		(17,867	)		5.36
Forfeited or expired	-			-		(997	)		6.49		(1,972	)		5.17
Outstanding at end of year	659,979		$	7.75	6.2 years	617,181		$	7.05	6.5 years	556,474		$	6.72	6.9 years
Options exercisable at year-end	432,055		$	6.74	5.2 years	346,509		$	7.05	5.5 years	257,290		$	7.57	5.5 years
Weighted average fair value of
options granted during the year			$	7.15				$	5.48				$	3.82
Shares available for grant	262,237					140,525					229,616

The aggregate intrinsic value (the difference between the Company’s closing stock price on the last trading day of the year and the exercise price, multiplied by the number of in-the-money options) of 659,979 and 617,181 stock options outstanding at December 31, 2014 and 2013 was $6.1 million and $3.9 million, respectively. The aggregate intrinsic value of 432,055 and 346,509 stock options exercisable at December 31, 2014 and 2013 was $4.4 million and $2.2 million, respectively.

The fair value of the option grant is estimated on the date of grant using the Black-Scholes option-pricing model. The following assumptions were used for grants:


	2014	2013	2012
Dividend yield	-	-	-
Expected life	7 years	10 years	10 years
Expected volatility	49.90%	43.74%	44.04%
Risk-free interest rate	2.29%	1.78%	1.86%

At December 31, 2014, there was $798,000 of total unrecognized compensation cost related to nonvested stock option grants. The cost is expected to be recognized over a weighted-average period of 1.8 years. The total fair value of stock option grants that vested during 2014, 2013, and 2012 was $3.30, $2.81 and $2.83, respectively.

Restricted Stock Grants
In 2006, the Company adopted a restricted stock plan for the benefit of the directors, officers and employees. Under the restricted stock plan, 13,310 shares of restricted stock (adjusted for the stock dividends in 2011 and 2012) were authorized for issuance. As of December 31, 2012 all shares of restricted stock, authorized under the plan had been granted. In May 2010, the Company adopted the 2010 Incentive Plan which included a provision for the issuance of 79,860 shares of restricted stock (adjusted for all subsequent stock dividends). As of December 31, 2014, there were 14,049 shares of restricted stock available for grant.

Shares of restricted stock granted to employees under the stock plans are subject to restrictions as to continuous employment for a specified time period following the date of grant. During this period, the holder is entitled to full voting rights and dividends.

A summary of the status of the Company’s nonvested restricted stock and changes for the years ended December 31, 2014, 2013, and 2012 (adjusted for the stock dividends in 2012 and 2013) is as follows:


	December 31,
	2014				2013				2012
			Weighted				Weighted				Weighted
			Average				Average				Average
	Restricted		Grant-Date		Restricted		Grant-Date		Restricted		Grant-Date
	Shares		Fair Value		Shares		Fair Value		Shares		Fair Value
Nonvested at beginning of year	64,650		$	10.92	28,119		$	6.76	3,025		$	6.53
Granted	4,500			14.15	43,750			12.91	25,850			6.78
Vested	(18,156	)		10.46	(7,219	)		6.76	(756	)		6.53
Forfeited	-			-	-			-	-			-
Nonvested at end of year	50,994		$	11.37	64,650		$	10.92	28,119		$	6.76

At December 31, 2014, there was $501,000 of total unrecognized compensation cost related to nonvested restricted stock grants. The cost is expected to be recognized over a weighted-average period of 1.9 years.