7. STOCK-BASED COMPENSATION

Stock Options

In 2001, the Company established a Stock Option Plan for which 103,093 shares of common stock remain reserved for issuance to employees and directors and no shares are available for future grants as of September 30, 2016.

As of September 30, 2016, all remaining shares in this plan have vested and no compensation cost remains unrecognized.

The total fair value of options vested was $0 and $49,000 for nine months ended September 30, 2016 and 2015. The total intrinsic value of options at time of exercise was $212,000 and $202,000 for the nine months ended September 30, 2016 and 2015, respectively.

Cash received from option exercises for the nine months ended September 30, 2016 and 2015 were $100,000 and $63,000, respectively. There was no tax benefit realized for the tax deduction from options exercised during the nine months ended September 30, 2016 and 2015.

A summary of the activity within the 2001 Stock Option Plan follows:

	Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term in Years		Intrinsic Value
Options outstanding at January 1, 2016		192,893		$	5.75
Options forfeited		(55,800	)		12.61
Options exercised		(34,000	)		2.95
Options outstanding at September 30, 2016		103,093		$	2.95		2.5	$	751,000
Options exercisable at September 30, 2016		103,093		$	2.95		2.5	$	751,000

In May 2013, the Company established the 2013 Stock Option Plan for which 490,643 shares of common stock are reserved and 288,800 shares are available for future grants as of September 30, 2016. The Plan requires that the option price may not be less than the fair market value of the stock at the date the option is granted, and that the stock must be paid in full at the time the option is exercised. Payment in full for the option price must be made in cash, with Company common stock previously acquired by the optionee and held by the optionee for a period of at least six months, in options of the Optionee that are fully vested and exercisable or in any combination of the foregoing. The options expire on dates determined by the Board of Directors, but not later than ten years from the date of grant.

During the nine months ended September 30, 2016 the Company granted options to purchase 108,000 shares of common stock. The fair value of each option was estimated on the date of grant using the following assumptions.

	2016
Expected life of stock options (in years)		5.1
Risk free interest rate		1.52%
Volatility		53.6%
Dividend yields		2.00%
Weighted-average fair value of options granted during the nine months ended September 30, 2016		$3.55

No options were granted during the nine months ended September 30, 2015.

As of September 30, 2016, there was $313,000 of total unrecognized compensation cost related to non-vested, share-based compensation arrangements granted under the 2013 Plan. That cost is expected to be recognized over a weighted average period of 2.8 years.

The total fair value of options vested was $76,000 and $83,000 for nine months ended September 30, 2016 and 2015. The total intrinsic value of options at time of exercise was $17,000 and $0 for the nine months ended September 30, 2016 and 2015, respectively.

Cash received from option exercises for the nine months ended September 30, 2016 was $28,000. The tax benefit realized for the tax deductions from option exercise totaled $1,000 for the nine months ended September 30, 2016.

A summary of the activity within the 2013 Plan follows:

	Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term in Years		Intrinsic Value
Options outstanding at January 1, 2016		102,400		$	6.32
Options granted		108,000			8.75
Options exercised		(6,800	)		6.32
Options outstanding at September 30, 2016		203,600		$	7.61		6.5	$	535,000
Options exercisable at September 30, 2016		45,200			6.32		5.6	$	177,000
Expected to vest after September 30, 2016		138,172		$	7.98		6.8	$	312,000

Compensation cost related to stock options recognized in operating results under the two stock option plans was $86,000 and $56,000 for the nine months ended September 30, 2016 and 2015, respectively. The associated income tax benefit recognized was $10,000 for the nine months ended September 30, 2016 and $5,000 for the nine months ended September 30, 2015. Compensation cost related to stock options recognized in operating results under the two stock option plans was $31,000 and $15,000 for the three months ended September 30, 2016 and 2015, respectively. The associated income tax benefit recognized was $4,000 for the three months ended September 30, 2016 and $1,000 for the three months ended September 30, 2015.

The Company determines the fair value of options on the date of grant using a Black-Scholes-Merton option pricing model that uses assumptions based on expected option life, expected stock volatility and the risk-free interest rate. The expected volatility assumptions used by the Company are based on the historical volatility of the Company’s common stock over the most recent period commensurate with the estimated expected life of the Company’s stock options. The Company bases its expected life assumption on its historical experience and on the terms and conditions of the stock options it grants to employees. The risk-free rate is based on the U.S. Treasury yield curve for the periods within the contractual life of the options in effect at the time of the grant. The Company also makes assumptions regarding estimated forfeitures that will impact the total compensation expenses recognized under the Plans.