Note 4. Stock Option Plan

At September 30, 2012, the Corporation had one stock-based compensation plan, which is the 1999 Directors’ Stock Compensation Plan (the “Directors’ Plan”). Prior to its expiration, the Corporation also had the 1999 Employees’ Long-Term Incentive Plan, or the Employees’ Plan.

On April 25, 2012, the non-management members of the Board of Directors were granted a total of 13,500 options as specified in the Directors’ Plan. These options were granted at an exercise price of $18.76 per option, which was the closing price of Citizens Holding Company stock on that day. These options are first exercisable on October 26, 2012, and must be exercised no later than April 25, 2022.

The fair value of each option granted is estimated on the date of the grant using the Black-Scholes option-pricing model. The following assumptions were used in estimating the fair value of the options granted to the directors in the second quarter of 2012:


Assumption	Directors
Dividend Yield		4.70	%
Risk-Free Interest Rate		0.78	%
Expected Life		8.2 years
Expected Volatility		78.29	%
Calculated Value per Option	$	8.88
Forfeitures		0.00	%

Using the Black-Scholes option-pricing model with the foregoing assumptions, it was determined that the cost of options granted under the Directors’ Plan on April 25, 2012 was $119,834 and should be recognized as an expense of $19,972 per month over the six-month requisite service period, beginning on April 25, 2012. This was recorded as salary expense with a credit to paid-in capital. A deferred tax on these options was recorded in the aggregate amount of $44,698, or $7,450 per month, over the six-month requisite service period, beginning on April 25, 2012.

The following table below is a summary of the stock option activity for the nine months ended September 30, 2012.


	Directors’ Plan					Employees’ Plan
	Number of Shares			Weighted Average Exercise Price		Number of Shares			Weighted Average Exercise Price
Outstanding at December 31, 2011		102,000		$	21.00		135,500		$	19.96
Granted		13,500			18.76		—			—
Exercised		(3,000	)		15.00		(14,500	)		14.65
Expired		(1,500	)		15.00		(13,000	)		18.09

Outstanding at September 30, 2012		111,000		$	20.97		108,000		$	20.90

The intrinsic value of options granted under the Directors’ Plan at September 30, 2012, was $42,900 and the intrinsic value of options granted under the Employees’ Plan at September 30, 2012, was $79,735 for a total intrinsic value at September 30, 2012, of $122,635.