STOCK INCENTIVE PLAN AND EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST

12 Months Ended

Dec. 31, 2014

Stock Incentive Plan And Employee Stock Ownership Plan And Trust

STOCK INCENTIVE PLAN AND EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST

11. Stock Incentive Plan and Employee Stock Ownership Plan and Trust

We have a Stock Incentive Plan which was approved in 1998 with 180,000 (299,475 adjusted for two 10% stock dividends, a 10% stock distribution, and a 25% stock dividend) shares reserved and a Stock Incentive Plan which was approved in 2010 with 300,000 shares reserved. Under both Plans, options are periodically granted to employees at a price not less than the fair market value of the shares at the date of grant. Employees become 20% vested after five years and then vest 20% each year until fully vested. The right to exercise each such 20% of the options is cumulative and will not expire until the tenth anniversary of the date of the grant. All employees are eligible to participate in this plan if the Executive Committee, in its sole discretion, determines that such person has contributed or can be expected to contribute to our profits or growth.

On July 24, 2014, the Executive Committee granted options to purchase an aggregate of 10,000 shares to twelve employees. Fair value was estimated at the date of grant using the Black-Scholes option-pricing model with the following assumptions: dividend yield 3.74%, historical volatility 31.69%, risk free interest rate of 2.52% and an expected life of 10 years.

On June 27, 2013, the Executive Committee granted options to purchase an aggregate of 5,000 shares to five employees. Fair value was estimated at the date of grant using the Black-Scholes option-pricing model with the following assumptions: dividend yield 3.98%, historical volatility 36.34%, risk free interest rate of 2.49%, and an expected life of ten years. On December 19, 2013, the Executive Committee granted options to purchase an aggregate of 2,000 shares to three employees. Fair value was estimated at the date of grant using the Black-Scholes option-pricing model with the following assumptions: dividend yield 3.98%, historical volatility 36.34%, risk free interest rate of 2.94%, and an expected life of ten years.

On June 28, 2012 the Executive Committee granted options to purchase an aggregate of 9,000 shares to five employees. Fair value was estimated at the date of grant using the Black-Scholes option-pricing model with the following assumptions: dividend yield 3.97%, historical volatility 33.94%, with an expected life of ten years, and a risk free interest rate of 1.60%. On September 24, 2012, the Board of Director’s granted options to purchase 2,500 shares to one employee. Fair value was estimated at the date of grant using the Black-Scholes option-pricing model with the following assumptions: dividend yield 3.97%, historical volatility 33.94%, with an expected life of ten years, and a risk free interest rate of 1.74%.

There are currently options to purchase 24,915 shares outstanding under the 1998 Omnibus Stock Incentive Plan with options to purchase 16,280 exercisable at December 31, 2014. This plan has expired, however, those shares granted before the expiration date, may still be exercised.

A summary of the activity under the 1998 and 2010 Omnibus Stock Incentive Plans for the years ended December 31, 2014, 2013, and 2012 follows:

	December 31,
	2014					2013					2012
	Shares			Weighted Average Exercise Price		Shares			Weighted Average Exercise Price		Shares			Weighted Average Exercise Price
Outstanding, January 1		159,165		$	11.34		174,467		$	11.20		168,266		$	11.23
Granted		10,000			14.84		7,000			13.48		11,500			11.30
Expired		(6,500	)		12.27		(9,653	)		11.91		(4,000	)		13.75
Exercised		(2,500	)		10.42		(12,649	)		10.16		(1,299	)		8.54
Outstanding, December 31		160,165		$	11.53		159,165		$	11.34		174,467		$	11.20

		December 31, 2014
Exercise Price:		Number of Options Outstanding	Weighted Average Remaining Contractual Life		Weighted Average Exercise Price		Intrinsic Value of Outstanding Options	Number of Options Exercisable		Weighted Average Exercise Price		Intrinsic Value of Exercisable Options
$	15.11	13,915	1.4	$	15.11	$	(4,453)	11,000	$	15.11	$	(3,520)
$	14.54	5,500	2.0	$	14.54	$	1,375	3,300	$	14.54	$	825
$	13.73	3,300	2.5	$	13.73	$	3,498	1,100	$	13.73	$	1,166
$	12.90	2,200	3.2	$	12.90	$	4,158	880	$	12.90	$	1,663
$	10.77	16,250	5.7	$	10.77	$	65,325	-	$	-	$	-
$	11.67	5,000	6.2	$	11.67	$	15,600	-	$	-	$	-
$	10.42	91,000	6.5	$	10.42	$	397,600	-	$	-	$	-
$	11.11	8,250	7.6	$	11.11	$	30,360	-	$	-	$	-
$	12.00	2,500	7.9	$	12.00	$	6,975	-	$	-	$	-
$	12.84	1,000	8.6	$	12.84	$	1,950	-	$	-	$	-
$	15.00	2,000	8.9		15.00	$	(420)	-	$	-	$	-
$	14.84	9,250	9.6	$	14.84	$	(463)	-	$	-	$	-
		160,165	5.98	$	11.53	$	521,505	16,280	$	14.91	$	134

The weighted average grant-date fair value of options granted is presented below:

Weighted Average Grant-Date Fair Value
Date of Grant		Outstanding Shares		Weighted Average Grant-Date Fair Value
	2006		13,915	$	4.48
	2007		5,500	$	4.45
	2007		3,300	$	4.45
	2008		2,200	$	3.43
	2010		16,250	$	6.13
	2011		5,000	$	4.62
	2011		91,000	$	4.03
	2012		8,250	$	2.55
	2012		2,500	$	2.76
	2013		1,000	$	3.47
	2013		2,000	$	4.09
	2014		9,250	$	3.47

The total intrinsic value of options exercised during the years ended December 31, 2014, 2013, and 2012, were $12,775, $43,156, and $2,845, respectively.

   A summary of the status of our nonvested shares as of December 31, 2014 is presented below:

Nonvested Shares:	Shares			Weighted Average Grant-Date Fair Value
Nonvested at beginning of year		148,440		$	4.29
Granted		10,000			3.47
Vested		(8,055	)		4.27
Forfeited		(6,500	)		4.49
Nonvested at end of year		143,885		$	4.23

We recognized compensation cost for the years ended December 31, 2014, 2013 and 2012 in the amount of $74,908, $74,722, and $72,928, respectively, related to the granted options.

As of December 31, 2014, there was a total of $437,452 in unrecognized compensation cost related to nonvested share-based compensation arrangements granted under the Plan. The cost is expected to be recognized over a weighted average period of 5.98 years.

We established an Employee Stock Ownership Plan (“ESOP”) effective January 1, 1989. Each employee who has attained age twenty-one and has completed at least 1,000 hours of service in a Plan year is eligible to participate in the ESOP. Contributions are determined annually by the Board of Directors and amounts allocable to individual participants may be limited pursuant to the provisions of Internal Revenue Code Section 415. The Company recognizes expense when the contribution is approved by the Board of Directors. The total expenses amounted to $280,000, in the years ended December 31, 2014 and 2013, respectively, and $285,000 for the year ended December 31, 2012.