STOCKHOLDERS' EQUITY

12 Months Ended

Dec. 31, 2013

STOCKHOLDERS EQUITY [Abstract]

STOCKHOLDERS EQUITY

8. STOCKHOLDERS’ EQUITY

The Company has a Dividend Reinvestment Plan to provide stockholders of record with a convenient method of investing cash dividends and optional cash payments in additional shares of the Company’s common stock without payment of any brokerage commission or service charges. At the Company’s discretion, such additional shares may be purchased directly from the Company using either originally issued shares or treasury shares at a 3% discount from market value, or the shares may be purchased in negotiated transactions or on any securities exchange where such shares may be traded at 100% of cost. No shares were issued in 2013 or 2012 under this plan. There were 32,614 shares issued in 2011.

Under the terms of the Company’s stock option plans adopted in 1999 and 2009, options have been granted to key employees and directors to purchase shares of the Company’s stock. Under the 2009 Stock Incentive Plan (“the Plan”), a total of 500,000 shares of the Company’s common stock were reserved for issuance, of which 261,833 shares remain for possible issuance at December 31, 2013. There are no remaining shares reserved for issuance under the 1999 Stock Option Plan. Options are awarded by the Compensation Committee of the Board of Directors. Both plans provide that the option price shall not be less than the fair value of the common stock on the date the option is granted. All options are exercisable for a period of ten years or less. Options granted in 2013 and 2012 are exercisable over a three-year period commencing one year from the date of grant at a rate of one third per year. Options granted in 2011 are exercisable over a three-year period commencing three years from the date of grant at a rate of one third per year.

Both plans provide for but do not require the grant of stock appreciation rights (“SARs”) that the holder may exercise instead of the underlying option. At December 31, 2013, there were 6,000 SARs outstanding related to options granted before 2011. The SARs had no intrinsic value at December 31, 2013. When the SAR is exercised, the underlying option is canceled. The optionee receives shares of common stock or cash with a fair market value equal to the excess of the fair value of the shares subject to the option at the time of exercise (or the portion thereof so exercised) over the aggregate option price of the shares set forth in the option agreement. The exercise of SARs is treated as the exercise of the underlying option.

The total intrinsic value of options exercised for the year ended December 31, 2013 was $15 thousand. The total cash received from such option exercises was $91 thousand, excluding the tax benefit realized. In exercising those options, 6,667 new shares of the Company’s common stock were issued. No options were exercised in 2012. The total intrinsic value of options exercised for the year ended December 31, 2011 was $47 thousand. No cash was received from the option exercises in 2011 as the optionee, in exercising those options, paid the option exercise price in full by surrendering 3,112 shares at a fair market value of $77 thousand.

In 2011 the Company granted an award of 30,000 non-qualified stock options at an exercise price of $10.79 per share to its President and Chief Executive Officer as a material inducement to employment with the Company. The non-qualified options were not issued as part of any of the Company’s registered stock-based compensation plans. The options are exercisable over a three-year period commencing three years from the date of grant at a rate of one third per year.

The Company accounts for stock-based compensation on a modified prospective basis with the fair value of grants of employee stock options recognized in the financial statements. Compensation expense related to stock-based compensation amounted to $579 thousand and $458 thousand for the years ended December 31, 2013 and 2012, respectively. There was no such expense for 2011. The remaining unrecognized compensation cost of approximately $942 thousand at December 31, 2013 will be expensed over the remaining weighted average vesting period of approximately 2.4 years.

A summary of stock option activity follows:

	Number of Shares			Weighted-Average Exercise Price Per Share
Outstanding - January 1, 2011		89,500		$	30.32
Granted		50,000			10.79
Exercised		(5,000	)		15.50
Forfeited or expired		(23,000	)		28.67
Outstanding - December 31, 2011		111,500			22.57
Granted		130,000			13.15
Exercised		-			-
Forfeited or expired		(30,000	)		32.23
Outstanding - December 31, 2012		211,500			15.41
Granted		111,500			17.31
Exercised		(6,667	)		13.44
Forfeited or expired		(25,333	)		15.50
Outstanding - December 31, 2013		291,000		$	16.18

The following table presents the Black-Scholes parameters for stock options granted during the past three years:

	2013			2012			2011
Risk-free interest rate		1.22	%		0.78	%		2.10	%
Expected dividend yield		-			-			-
Expected life in years		10			10			10
Expected volatility		42.95	%		43.03	%		42.60	%
Weighted average fair value	$	9.24		$	7.13		$	5.95

The following summarizes shares subject to purchase from stock options outstanding and exercisable as of December 31, 2013:

		Outstanding					Exercisable
Range of				Weighted-Average					Weighted-Average
Exercise				Remaining	Weighted-Average				Remaining	Weighted-Average
Prices		Shares		Contractual Life	Exercise Price		Shares		Contractual Life	Exercise Price
$	10.00 - $14.00		140,000	8.2 years	$	12.01		30,002	8.3 years	$	12.68
$	14.01 - $20.00		121,500	9.5 years	$	17.12		3,334	8.7 years	$	14.97
$	20.01 - $30.00		5,000	5.1 years	$	28.30		5,000	5.1 years	$	28.30
$	30.01 - $40.00		24,500	2.3 years	$	32.87		24,500	2.3 years	$	32.87
			291,000	8.2 years	$	16.18		62,836	5.7 years	$	21.92