Stock-Based Compensation

12 Months Ended

Dec. 31, 2011

Stock-Based Compensation

Note 12 – Stock-Based Compensation

The Company’s 2009 Stock Incentive Plan (the Plan) was approved by the Company’s Board of Directors (the Board) on June 3, 2009. Under the terms of the Plan, officers and key employees may be granted both nonqualified and incentive stock options and restricted stock awards. The Board reserved 161,778 shares of common stock for issuance under the stock incentive plan. Through December 31, 2011, there are 96,940 of stock options, net of forfeitures, that have been issued and not exercised, and there are 10,500 shares of restricted stock, net of forfeitures, that have been issued but have not vested. As of December 31, 2011 and 2010, 54,338 shares and 84,838 shares, respectively, were available for future issuance. The Company recognized stock-based compensation costs related to stock options and restricted stock awards of $90,115 and $72,797 for the year ended December 31, 2011 and 2010, respectively.

Stock options – The Plan provides for options to purchase shares of common stock at a price not less than 100% of the fair market value of the stock on the date of grant. Stock options vest ratably at 20% per year for 5 years, and have a 10-year contractual term. The Plan provides for accelerated vesting if there is a change of control, as defined in the Plan.

In June 2009, stock options totaling 121,940 were issued to three employees. In 2010 and 2011, two employees forfeited their options upon their departure for a combined total of 50,000 shares. A second stock option issuance occurred in February 2011 totaling 25,000 between two employees. As of December 31, 2011, vested stock options total 28,776. There have been no option exercises in 2011, 2010, or 2009.

The following table presents a summary of the stock option activity for the years ended December 31, 2011 and 2010.

	Options			Weighted- Average Grant Date Fair Value		Weighted- Average Exercise Price
Outstanding at December 31, 2009		91,940		$	2.29	$	10.00
Granted		-			-		-
Exercised		-			-		-
Forfeited		(20,000	)		2.29		10.00
Outstanding at December 31, 2010		71,940		$	2.29	$	10.00
Options Exercisable as of December 31, 2010		14,388
Outstanding at December 31, 2010		71,940		$	2.29	$	10.00
Granted		25,000			2.24		10.00
Exercised		-			-		-
Forfeited		-			-		-
Outstanding at December 31, 2011		96,940		$	2.28	$	10.00
Options Exercisable as of December 31, 2011		28,776

The fair value of each option grant was estimated on the date of grant using the Black-Scholes-Merton option pricing model with the following assumptions presented below:

Grant date	June 8, 2009	February 23, 2011
Total number of options granted	121,940	25,000
Expected volatility	7.40%	7.40%
Expected term	7 years	7 years
Expected dividend	0.00%	0.00%
Risk-free rate	3.60%	3.49%
Grant date fair value	$2.29	$2.24

Since the Bank has no historical stock activity, the expected volatility is based on the historical volatility of similar banks that have a longer trading history. The expected term represents the estimated average period of time that the options will remain outstanding. Since the Bank does not have sufficient historical data on the exercise of stock options, the expected term is based on the “simplified” method that measures the expected term as the average of the vesting period and the contractual term. The risk-free rate of return reflects the grant date interest rate offered for zero coupon U.S. Treasury bonds with the same expected term as the options.

As of December 31, 2011 and 2010, there was $60,174 and $58,360, respectively, of total unrecognized compensation cost related to the outstanding stock options that will be recognized over the remainder of their vesting schedule. There is no intrinsic value in these stock options as of December 31, 2011 and 2010, as the exercise price equals the last traded price of the Company’s common stock.

Restricted Stock Awards – The first grant of restricted stock awards occurred in June 2009, totaling 5,000 shares, with a vesting schedule of 36 months. In November 2009, another 1,000 restricted stock was awarded with a vesting schedule of 36 months. A third grant of 6,500 restricted stock awards was made in February 2011 with half of those shares vesting in 18 months and the remaining half vesting in 36 months. Two employees forfeited a combined total of 2,000 restricted stock awards upon their voluntary departure from the Bank in 2009 and 2010. The compensation expense of all restricted stock awards is recognized over the vesting period of each grant.

	Shares			Weighted- Average Grant Date Fair Value
Outstanding at December 31, 2009		6,000		$	10.00
Granted		-			-
Forfeited		(1,000	)		10.00
Outstanding at December 31, 2010		5,000		$	10.00

	Shares			Weighted- Average Grant Date Fair Value
Outstanding at December 31, 2010		5,000		$	10.00
Granted		6,500			10.00
Forfeited		(1,000	)		10.00
Outstanding at December 31, 2011		10,500		$	10.00

As of December 31, 2011 and 2010, there was $44,583 and $25,000, respectively, of total unrecognized compensation cost related to the restricted stock awards that will be recognized over the remaining vesting schedules of the various grants.