NOTE 6 - STOCK-BASED COMPENSATION

The Company has stock-based incentive arrangements to attract and retain key personnel. In May 2005, the 2005 Equity Compensation Plan (the “Plan”) was approved by shareholders, which authorizes the issuance of restricted stock, stock appreciation rights, stock units and stock options to the Board of Directors and key employees. Compensation expense for service-based awards is recognized over the vesting period. Performance-based awards are recognized based on a vesting schedule, if applicable, and the probability of achieving goals specified at the time of the grant.

Stock-based compensation expense totaled $146,000 and $147,000 for the six months ended June 30, 2014 and 2013, respectively, which consisted of the vesting of grants of restricted stock and restricted stock units. Stock-based compensation for the six months ended June 30, 2013 included director compensation of $3,000 for stock granted in lieu of cash compensation. All outstanding options were fully vested and the Company has not granted any stock options since 2007.

The fair value of the Company’s outstanding employee stock options is estimated on the date of grant using the Black-Scholes option pricing model. The Company estimates expected market price volatility and expected term of the options based on historical data and other factors.

The exercise price for options granted is set at the discretion of the committee administering the Plan, but is not less than the market value of the shares as of the date of grant. An option’s maximum term is 10 years and the options vest at the discretion of the committee.

The following tables below summarize outstanding and exercisable options at June 30, 2014 and December 31, 2013.


		Weighted		Weighted-Average
		Average	Aggregate	Contractual Life
		Exercise	Intrinsic	Remaining In
(dollars in thousands, except per share amounts)	Shares	Price	Value	Years

Outstanding at January 1, 2014	159,517	$ 20.12	$ 347
Exercised	(6,665)	15.89	34
Outstanding at June 30, 2014	152,852	$ 20.30	$ 611	0.7

Exercisable at June 30, 2014	152,852	$ 20.30	$ 611	0.7


		Weighted		Weighted-Average
		Average	Aggregate	Contractual Life
		Exercise	Intrinsic	Remaining In
(dollars in thousands, except per share amounts)	Shares	Price	Value	Years

Outstanding at January 1, 2013	236,059	$ 18.49	$ 164
Exercised	(55,672)	13.16	310
Forfeited	(20,870)	20.27
Outstanding at December 31, 2013	159,517	$ 20.12	$ 347	1.0

Exercisable at December 31, 2013	159,517	$ 20.12	$ 347	1.0

Options outstanding are all currently exercisable and are summarized as follows:


Shares Outstanding	Weighted Average	Weighted Average
June 30, 2014	Remaining Contractual Life	Exercise Price
65,417	1 years	$	15.89
66,224	2 years		22.29
21,211	4 years		27.70
152,852		$	20.30

The aggregate intrinsic value of outstanding stock options and exercisable stock options was $611,000 and $347,000 at June 30, 2014 and December 31, 2013, respectively. Aggregate intrinsic value represents the difference between the Company’s closing stock price on the last trading day of the period, which was $23.75 and $20.71 per share at June 30, 2014 and December 31, 2013, respectively, and the exercise price multiplied by the number of in the money options outstanding.

The Company has outstanding restricted stock and stock units granted in accordance with the Plan. The vesting period for granted restricted stock is between three and five years. As of June 30, 2014, unrecognized stock compensation expense was $573,000. The following tables summarize the unvested restricted stock awards and units outstanding at June 30, 2014 and December 31, 2013, respectively.


	Restricted Stock		Restricted Stock Units

	Number of Shares	Weighted Average Grant Date Fair Value	Number of Units	Fair Value

Nonvested at January 1, 2014	16,832	$ 17.86	4,210	$ 20.71
Granted	33,460	21.35	-	-
Vested	(17,105)	15.39	(2,105)	20.29

Nonvested at June 30, 2014	33,187	$ 20.90	2,105	$ 23.75


	Restricted Stock		Restricted Stock Units
	Number of Shares	Weighted Average Grant Date Fair Value	Number of Units	Fair Value

Nonvested at January 1, 2013	23,569	$ 15.64	5,211	$ 15.98
Granted	13,656	18.00	2,105	20.71
Vested	(20,393)	18.79	(3,106)	15.98

Nonvested at December 31, 2013	16,832	$ 17.86	4,210	$ 20.71