Note 17 — Stock Based Compensation

Stock Option Plans

At December 31, 2013, the Corporation maintained two stock-based compensation plans from which new grants could be issued. The 2009 Equity Incentive Plan permits the grant of “incentive stock options” as defined under the Internal Revenue Code, non-qualified stock options, restricted stock awards and restricted stock unit awards to employees, including officers, and consultants of the Corporation and its subsidiaries. The 2003 Non-Employee Director Stock Option Plan permits the grant of non-qualified stock options to the Corporation’s non-employee directors. An aggregate of 363,081 shares remain available for grant under the 2009 Equity Incentive Plan and an aggregate of 406,527 shares remain available for grant under the 2003 Non-Employee Director Stock Option Plan. Such shares may be treasury shares, newly issued shares or a combination thereof.

Options have been granted to purchase common stock principally at the fair market value of the stock at the date of grant. Options vest over a three year vesting period starting one year after the date of grant and generally expire ten years from the date of grant.

The total compensation expense related to these plans was $59,000, $39,000 and $35,000 for the years ended December 31, 2013, 2012 and 2011, respectively.

As a result of the compensation expense related to stock options: (i) for the year ended December 31, 2013, the Corporation’s income before income taxes and net income was reduced by $59,000 and $35,000, respectively; (ii) for the year ended December 31, 2012, the Corporation’s income before income taxes and net income was reduced by $39,000 and $23,000, respectively; and (iii) for the year ended December 31, 2011, the Corporation’s income before income taxes and net income was reduced by $35,000 and $21,000, respectively.

Under the principal option plans, the Corporation may grant restricted stock awards to certain employees. Restricted stock awards are non-vested stock awards. Restricted stock awards are independent of option grants and are generally subject to forfeiture if employment terminates prior to the release of the restrictions. Such awards generally vest during a period specified at the date of grant. During that period, ownership of the shares cannot be transferred. Restricted stock has the same cash dividend and voting rights as other common stock and is considered to be currently issued and outstanding. The Corporation expenses the cost of the restricted stock awards, which is determined to be the fair market value of the shares at the date of grant, ratably over the period during which the restrictions lapse. During 2013, 18,829 shares were awarded while in 2012, 2,125 shares were awarded. During 2011, 2,780 shares were awarded. 2013 shares were issued from treasury stock, while 2012 and 2011 shares were purchased in the open market. The amount of compensation cost related to restricted stock awards included in salary expense was $24,000, $25,000 and $25,000 in 2013, 2012 and 2011, respectively. As of December 31, 2013, all shares relating to 2012 and 2011 restricted stock awards were vested.

Options covering 41,639 shares were granted on August 27 and March 1, 2013, while 27,784 and 27,784 shares were granted on March 1, 2012 and March 1, 2011, respectively. The fair value of share-based payment awards was estimated using the Black-Scholes option pricing model with the following assumptions and weighted average fair values:

	2013			2012			2011
Weighted average fair value of grants	$	2.50 – 5.87		$	2.03		$	1.89
Risk-free interest rate		1.86 – 2.29	%		2.03	%		2.19	%
Dividend yield		1.76 – 2.11	%		1.24	%		1.32	%
Expected volatility		23.21 – 33.74	%		22.04	%		22.25	%
Expected life in months		69 – 90			68			65

Option activity under the principal option plans as of December 31, 2013 and changes during the twelve months ended December 31, 2013 were as follows:

	Shares		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (In Years)		Aggregate Intrinsic Value
Outstanding at December 31, 2012		183,574	$	10.04
Granted		41,639		12.95
Exercised		(2,268)		9.14
Forfeited/cancelled/expired		(34,565)		10.81
Outstanding at December 31, 2013		188,380	$	10.55		5.99	$	1,546,129
Exercisable at December 31, 2013		113,751	$	10.14		4.40	$	980,102

The aggregate intrinsic value of options above represents the total pre-tax intrinsic value (the difference between the Corporation’s closing stock price on the last trading day of 2013 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on December 31, 2013. This amount changes based on the fair market value of the Parent Corporation’s stock.

As of December 31, 2013, $266,000 of total unrecognized compensation cost related to stock options is expected to be recognized over a weighted-average period of 3.9 years. Changes in options outstanding during the past three years were as follows:

Stock Option Plan	Shares		Exercise Price Range per Share
Outstanding, December 31, 2010 (138,898 shares exercisable)		198,946		$7.67 to $15.73
Granted during 2011		27,784	$	9.11
Exercised during 2011		(42,495)	$	7.71
Expired or canceled during 2011		(12,857)	$	10.50 to $15.73
Outstanding, December 31, 2011 (105,388 shares exercisable)		171,378		$7.67 to $15.73
Granted during 2012		27,784	$	9.64
Exercised during 2012		(15,588)		$7.67 to $10.50
Expired or canceled during 2012		—	$	0.00
Outstanding, December 31, 2012 (117,111 shares exercisable)		183,574		$7.67 to $15.73
Granted during 2013		41,639	$	12.52 to $14.24
Exercised during 2013		(2,268)		$7.67 to $10.66
Expired or canceled or forfeited during 2013		(34,565)	$	7.67 to $15.73
Outstanding, December 31, 2013 (113,751 shares exercisable)		188,380		$7.67 to $15.73

Under the Director Stock Option Plan, there were stock options granted with a weighted average fair value of 31,257 and $2.50, 27,784 and $2.03 and 27,784 and $1.89 during the years ended December 31, 2013, 2012 and 2011, respectively. There were 18,829, 2,125 and 2,780 restricted stock awards granted under the Employee Stock Incentive Plan during the years ended December 31, 2013, 2012 and 2011, respectively. In addition, during 2013 10,382 stock options with a weighted average fair value of $5.87 were granted under the Employee Stock Incentive Plan.