Note J Employee Benefits and Stock Compensation

The Company’s profit sharing and retirement plan covers substantially all employees after one year of service and includes a matching benefit feature for employees electing to defer the elective portion of their profit sharing compensation. In addition, amounts of compensation contributed by employees are matched on a percentage basis under the plan. The profit sharing and retirement contributions charged to operations were $807,000 in 2013, $771,000 in 2012, and $361,000 in 2011.

The Company’s stock option and stock appreciation rights plans were approved by the Company’s shareholders on April 25, 1991, April 25, 1996, April 20, 2000, May 8, 2008 and May 23, 2013. The number of shares of common stock that may be granted pursuant to the 1991 and 1996 plans shall not exceed 198,000 shares for each plan, pursuant to the 2000 plan shall not exceed 264,000 shares, pursuant to the 2008 plan shall not exceed 300,000 shares, and pursuant to the 2013 plan shall not exceed 1,300,000 shares. The Company has granted options and stock appreciation rights (“SSARs”) on 166,000, 187,000, 158,000 shares for the 1991, 1996, and 2000 plans, respectively, through December 31, 2013; no options or SSARs have been granted under the 2008 and 49,000 shares have been granted under the 2013 plan. Under the 2008 plan the Company issued 229,000 of restricted stock awards at $7.10 per share during 2011 and 15,000 of restricted stock awards at $8.10 per share during 2012. Under the 2013 plan, the Company issued 195,000 of restricted stock units at $11.00 per share during 2013. The restricted stock units allow the grantee to earn 0-160 percent of the target award as determined by two criteria, the Company’s after-tax earnings and its classified assets ratio. Any restricted stock units meeting performance requirements at December 31, 2015 will vest by one-third on each of the first, second and third anniversaries of the last day of the performance period, December 31, 2016, 2017 and 2018, respectively. If the Company does not achieve the target performance goal for both criteria by December 31, 2015, then non of the restricted stock units will vest and they will be forfeited. Under the plans, the options, stock awards, SSARs restricted stock units exercise price equals the common stock’s market price on the date of the grant. All options or SSARs issued after December 31, 2002 have a vesting period of five years and a contractual life of ten years. All stock awards and restricted stock units have a contractual life of three or five years. To the extent the Company has treasury shares available, stock options exercised or stock grants awarded may be issued from treasury shares or, if treasury shares are insufficient, the Company can issue new shares. The Company has a single share repurchase program in place, approved on September 18, 2001, authorizing the repurchase of up to 165,000 shares; the maximum number of shares that may yet be purchased under this program is 12,000.

The Company granted stock options totaling 49,000 shares in 2013, but did not grant any stock options or SSARS in 2012 or 2011. Stock option fair value is measured on the date of grant using the Black-Scholes option pricing model with market assumptions. Option pricing models require the use of highly subjective assumptions, including expected price volatility, which when changed can materially affect fair value estimates. Accordingly, the model does not necessarily provide a reliable single measure of the fair value of the Company’s stock options or SSARs. The more significant assumptions used in estimating the fair value of stock options granted in 2013 include: risk-free interest rate of 2.5 percent; no dividends; weighted average expected life of 5 years; and volatility of the Company’s common stock of 26.5 percent. Additionally, the estimated fair value of stock options is reduced, by an estimate of forfeiture experience of 22 percent.

The following table presents a summary of stock option and SSARs activity for the years ended December 31, 2013, 2012 and 2011:


	Number of Shares			Option or SSAR Exercise Price Per Share		Weighted Average Exercise Price		Aggregate Intrinsic Value
Dec. 31, 2010		109,000			$85.40 –136.80	$	106.05	$	0
Granted		0			0		0
Exercised		0			0		0
Expired		0			0		0
Cancelled		(2,000	)		85.40 –136.80		100.70

Dec. 31, 2011		107,000			85.40 –136.80		107.10		0
Granted		0			0		0
Exercised		0			0		0
Expired		0			0		0
Cancelled		(20,000	)		85.40 –133.60		113.30

Dec. 31, 2012		87,000			85.40 –136.80		105.60		0
Granted		49,000			11.00		11.00
Exercised		0			0		0
Expired		(28,000	)		85.40		85.40
Cancelled		(6,000	)		111.10 –136.80		113.57

Dec. 31, 2013		102,000			11.00 – 133.60		65.10		0

No stock options were exercised during 2013. No windfall tax benefits were realized from the exercise of stock options and no cash was utilized to settle equity instruments granted under stock option awards.

The following table summarizes information about stock options outstanding and exercisable at December 31, 2013:


Options / SSARs Outstanding		Options / SSARs Exercisable (Vested)
Number of Shares Outstanding	Weighted Average Remaining Contractual Life in Years	Number of Shares Exercisable	Weighted Average Exercise Price	Weighted Average Remaining Contractual Life in Years	Aggregate Intrinsic Value
102,000	5.91	53,000	$115.48	2.58	$0

At December 31, 2013, all stock options and SSARs were fully vested with no remaining unrecognized compensation cost, except for stock options issued during 2013. Adjusting for potential forfeiture experience, non-vested stock options for 49,000 shares were outstanding at December 31, 2013, and are as follows:

Number of

Non-Vested
Stock Options

Weighted Average
Remaining Contractual
Life in Years

Weighted

Average

Fair Value

Remaining
Unrecognized
Compensation Cost

Weighted Average
Remaining Recognition
Period in Years

49,000

9.50

$3.10

$107,000

4.50

Since December 31, 2012, restricted stock awards of 9,000 shares were issued, 15,000 awards have vested and 6,000 awards were cancelled. Non-vested restricted stock awards totaling 168,000 shares were outstanding at December 31, 2013, 12,000 less than at December 31, 2012, and are as follows:

Number of

Non-Vested
Restricted Stock
Award Shares

Remaining
Unrecognized
Compensation Cost

Weighted Average
Remaining Recognition
Period in Years

168,000

$559,000

2.64

During 2013, restricted stock units totaling 195,000 were issued, of which none were vested and 18,000 units were cancelled. Non-vested restricted units totaling 177,000 were outstanding at December 31, 2013, and are as follows:

Number of

Non-Vested
Restricted Stock
Units

Remaining
Unrecognized
Compensation Cost

Weighted Average
Remaining Recognition
Period in Years

177,000

$1,520,000

5.00

In 2013, 2012 and 2011 the Company recognized $246,000 ($151,000 after tax), $796,000 ($489,000 after tax) and $588,000 ($361,000 after tax), respectively of non-cash compensation expense.

No cash was utilized to settle equity instruments granted under restricted stock awards. No compensation cost has been capitalized and no significant modifications have occurred with regard to the contractual terms for stock options, SSARs or restricted stock awards.