STOCK-BASED COMPENSATION

Stock-based compensation is accounted for in accordance with FASB ASC 718, Compensation – Stock Compensation. The Company establishes fair value for its equity awards to determine their cost. The Company recognizes the related expense for employees over the appropriate vesting period, or when applicable, service period. However, consistent with the stock compensation topic of the FASB Accounting Standards Codification, the amount of stock-based compensation recognized at any date must at least equal the portion of the grant date value of the award that is vested at that date and as a result it may be necessary to recognize the expense using a ratable method. In accordance with FASB ASC 505-50, Equity-Based Payments to Non-Employees, the compensation expense for non-employees is recognized on the grant date, or when applicable, the service period.

The Company’s 2005 and 2010 Equity-Based Incentive Plans (the “Equity Plans”) authorize the issuance of shares of common stock pursuant to awards that may be granted in the form of stock options to purchase common stock (“options”) and awards of shares of common stock (“stock awards”). The purpose of the Equity Plans is to attract and retain personnel for positions of substantial responsibility and to provide additional incentive to certain officers, directors, advisory directors, employees and other persons to promote the success of the Company. Under the Equity Plans, options expire ten years after the date of grant, unless terminated earlier under the option terms. A committee of non-employee directors has the authority to determine the conditions upon which the options granted will vest. Options are granted at the then fair market value of the Company’s stock.

A summary of the status of the Company’s stock options under the Equity Plans as of June 30, 2016 and 2015 and changes during the three months ended June 30, 2016 and 2015 are presented below:

	Six Months Ended June 30, 2016				Six Months Ended June 30, 2015
	Number of shares		Weighted average exercise price		Number of shares		Weighted average exercise price
Outstanding at the beginning of the period		380,407	$	11.46		674,391	$	12.15
Granted		—		—		—		—
Exercised		9,620		11.14		119,511		13.04
Forfeited		2,160		13.56		1,000		10.21
Outstanding at the end of the period		368,627	$	11.45		553,880	$	11.96
Exercisable at the end of the period		316,273	$	11.10		425,537	$	11.85
Stock options vested or expected to vest (1)		284,646	$	11.10		382,983	$	11.85

(1)

Includes vested shares and non-vested shares after a forfeiture rate, which is based upon historical data, is applied.

The following table summarizes all stock options outstanding under the Equity Plans as of June 30, 2016:

	Options Outstanding
Date Issued	Number of Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life
November 21, 2006		14,506	$	14.78		0.4 years
November 20, 2007		17,274	$	11.32		1.4 years
August 18, 2010		201,959	$	10.21		4.1 years
March 15, 2011		13,600	$	12.06		4.7 years
August 17, 2011		43,998	$	11.53		5.1 years
November 19, 2012		14,100	$	13.10		6.4 years
November 19, 2013		63,190	$	14.14		7.4 years
Total		368,627	$	11.45		4.6 years

The compensation expense recognized for the three and six months ended June 30, 2016 was $45 thousand and $90 thousand, respectively, as compared to $46 thousand and $92 thousand for the three and six months ended June 30, 2015, respectively.

At June 30, 2016, there was $163 thousand of total unrecognized compensation cost related to options granted under the stock option plans. That cost is expected to be recognized over a weighted average period of 1.1 years.

Summary of Non-vested Stock Award Activity:

	Six Months ended June 30, 2016				Six Months ended June 30, 2015
	Number of shares		Weighted avg grant date fair value		Number of shares		Weighted avg grant date fair value
Beginning of period		26,610	$	14.06		54,950	$	10.74
Issued		—		—		—		—
Forfeited		—		—		—		—
Vested		990	$	12.06		990	$	12.06
Outstanding at June 30, 2015		25,620	$	14.14		53,960	$	12.73

The compensation expense recognized for the three and six months ended June 30, 2016 was $30 thousand and $63 thousand, respectively, as compared to $81 thousand and $162 thousand for the three and six months ended June 30, 2015.

As of June 30, 2016, there was $287 thousand of total unrecognized compensation costs related to non-vested stock awards. That cost is expected to be recognized over a weighted average period of 3 years.