Shareholders Equity

12 Months Ended

Dec. 31, 2013

Equity [Abstract]

Shareholders Equity

NOTE 20. SHAREHOLDERS EQUITY

On September 28, 2011, the Company entered into a Securities Purchase Agreement with the Secretary of the Treasury, pursuant to which the Company issued and sold to the Treasury 20,000 shares of its Senior Non-Cumulative Perpetual Preferred Stock, Series B (the “Series B Preferred Stock”), having a liquidation preference of $1,000 per share, for aggregate proceeds net of issuance costs of $19.9 million. The issuance was pursuant to the Treasury’s Small Business Lending Fund program (SBLF), a $30 billion fund established under the Small Business Jobs Act of 2010, which encourages lending to small businesses by providing capital to qualified community banks with assets of less than $10 billion.

The Series B Preferred Stock is entitled to receive non-cumulative dividends payable quarterly on each January 1, April 1, July 1 and October 1. The dividend rate, was calculated on the aggregate Liquidation Amount, and was initially set at 5% per annum based upon the initial level of Qualified Small Business Lending (QSBL) by the Bank. The dividend rate for future dividend periods was set based upon the percentage change in qualified lending between each dividend period and the baseline QSBL level established at the commencement of the Agreement. As a result of increased qualified lending, preferred stock dividends for the SBLF program are fixed at the current rate of 1% through January 2016.

If the Series B Preferred Stock remains outstanding beyond January 2016, the dividend rate will be fixed at 9%. Prior to that time, in general, the dividend rate decreased as the level of the Bank’s QSBL increased. Depending on our financial condition at the time, this increase in the Series B Preferred Stock annual dividend rate could have a material adverse effect on our earnings and could also adversely affect our ability to pay dividends on our common shares.

Dividends for the Series B Preferred Stock are not cumulative, but the Company may only declare and pay dividends on its common stock (or any other equity securities junior to the Series B Preferred Stock) if it has declared and paid dividends for the current dividend period on the Series B Preferred Stock, and will be subject to other restrictions on its ability to repurchase or redeem other securities. In addition, if (1) the Company has not timely declared and paid dividends on the Series B Preferred Stock for six dividend periods or more, whether or not consecutive, and (2) shares of Series B Preferred Stock with an aggregate liquidation preference of at least $20 million are still outstanding, the Treasury (or any successor holder of Series B Preferred Stock) may designate two additional directors to be elected to the Company’s Board of Directors. The weighted average effective dividend rate for the years ended December 31, 2013 2012 and 2011 was 1%, 1% and 4.66% respectively.

As more completely described in the Certificate of Designation, holders of the Series B Preferred Stock have the right to vote as a separate class on certain matters relating to the rights of holders of Series B Preferred Stock and on certain corporate transactions. Except with respect to such matters and, if applicable, the election of the additional directors described above, the Series B Preferred Stock does not have voting rights.

The Company may redeem the shares of Series B Preferred Stock, in whole or in part, at any time at a redemption price equal to the sum of the liquidation amount per share and the per-share amount of any unpaid dividends for the then-current period, subject to any required prior approval by the Company’s primary federal banking regulator.

On February 7, 2012, the Company announced that its Board of Directors had authorized the purchase of up to 1,019,490 or 6% of its outstanding shares. On January 16, 2013, the Company announced that its Board of Directors had authorized the purchase of up to 1,000,000 or 6% of its outstanding shares. On August 21, 2013, the Company announced that its Board of Directors had authorized the purchase of up to 1,000,000 or 7% of its outstanding shares.

Each of the stock repurchase plans in authorized the Company to conduct open market purchases or privately negotiated transactions over a twelve-month period from time to time when, at management’s discretion, it was determined that market conditions and other factors warranted such purchases. The Company repurchased and subsequently retired the full amount authorized under each plan, 2,000,000 common shares under both plans announced in 2013 and 1,019,490 shares under the plan announced in 2012. As such, the weighted average number of dilutive common shares outstanding decreased by 1,404,165 and 647,481 during the years ended December 31, 2013 and 2012 respectively. The decrease in weighted average shares positively contributed to increases in earnings per common share, and return on common equity.

Stock Plans – On May 15, 2010, the 1998 Stock Option Plan which was approved by the Company’s shareholders on April 21, 1998 expired and was replaced by the 2008 Stock Option Plan which was approved by the Company’s shareholders on May 20, 2008. The 2008 Stock Option Plan was amended in 2010 with the 2010 Equity Incentive Plan (“the Plan”) which was approved by the Company’s shareholders on May 15, 2010. The amended Plan provides for awards in the form of equity awards including stock options, restricted stock and restricted stock units which may constitute incentive stock options (“Incentive Options”) under Section 422(a) of the Internal Revenue Code of 1986, as amended (the “Code”), or non-statutory stock options (“NSOs”) to key personnel of the Company, including directors. The Plan provides that Incentive Options under the Plan may not be granted at less than 100% of fair market value of the Company’s common stock on the date of the grant. NSOs may not be granted at less than 100% of the fair market value of the common stock on the date of the grant. Generally, all options under the plan will vest at 20% per year from the date of the grant. Vesting may be accelerated in case of an optionee’s death, disability, and retirement or in case of a change of control.

For the years ended December 31, 2013, 2012 and 2011 stock option compensation expense was $32 thousand ($22 thousand, net of tax), $61 thousand ($41 thousand, net of tax), and $36 thousand ($24 thousand, net of tax), respectively. At December 31, 2013, 2012 and 2011 there were $70 thousand, $103 thousand, and $30 thousand respectively, of total unrecognized compensation costs related to non-vested share based payments. The unrecognized compensation costs are expected to be recognized over a weighted average period of two years.

Activity in stock-based compensation plan

The following table summarizes information about stock option activity for the years ended December 31, 2013, 2012 and 2011:

	Number of Shares			Weighted Average Exercise Price		Aggregate Intrinsic Value		Weighted Average Remaining Contractual Term
Options outstanding December 31, 2011		214,580		$	8.31		0		3.60
Granted		206,600		$	4.05	$	2,655		9.17
Exercised		(4,800	)	$	4.51	$	4,292		7.89
Forfeited		(73,943	)	$	6.97		0		1.60
Options outstanding December 31, 2012		342,437		$	6.09	$	114,125		6.77
Granted		12,000		$	5.11		0		9.64
Exercised		(4,000	)	$	4.05	$	4,080		8.17
Forfeited		(85,000	)	$	5.61		0		5.86
Options outstanding December 31, 2013		265,437		$	6.23	$	255,121		5.90
Exercisable at December 31, 2013		164,277		$	7.51	$	97,074		4.42

At December 31, 2013, 495 thousand shares were available for future grants under the Plan. As of December 31, 2013, 2012 and 2011, 164 thousand shares, 170 thousand shares, and 189 thousand shares, respectively, were available to be exercised. The grant date fair value per share of the 2013, and 2012 awards were $1.66 and $.74, respectively. The Company did not grant any awards in 2011.

During the year ended December 31, 2013 the company made one restricted share grant of five thousand shares, at December 31, 2013 one thousand of the restricted shares are vested. The grant date fair value per share of the restricted stock awards was $5.81. There were no restricted stock grants in the years ended December 31, 2012 and 2011. Holders of restricted stock awards receive non-forfeitable dividends at the same rate as common stockholders and they both share equally in undistributed earnings.