Note 12- Stock-Based Compensation

Bancorp has a stock-based compensation plan for directors, officers, and other key employees of Bancorp. The aggregate number of shares of common stock that may be issued with respect to the awards granted under the plan is 500,000 plus any shares forfeited under Bancorp’s old stock-based compensation plan. Under the terms of the plan, Bancorp has the ability to grant various stock compensation incentives, including stock options, stock appreciation rights, and restricted stock. The number of shares available to grant under the plan was 293,100 at December 31, 2014. The stock-based compensation is granted under terms and conditions determined by the Compensation Committee of the Board of Directors. Under the stock based compensation plan, stock options generally have a maximum term of ten years, and are granted with an exercise price at least equal to the fair market value of the common stock on the date the options are granted. Generally, options granted to directors of Bancorp vest immediately, and options granted to officers and employees vest over a five-year period, although the Compensation Committee has the authority to provide for different vesting schedules.

Bancorp follows FASB ASC 718, Compensation – Stock Compensation (FASB ASC 718) to account for stock-based compensation. FASB ASC 718 requires all share-based payments to employees, including grants of employee stock options, to be recognized as compensation expense in the statement of operations at fair value. FASB ASC 718 requires an entity to recognize the expense of employee services received in share-based payment transactions and measure the expense based on the grant date fair value of the award. The expense is recognized over the period during which an employee is required to provide service in exchange for the award. Stock-based compensation expense included in the consolidated statements of operations for the years ended December 31, 2014 and 2013 totaled $201,000 and $108,000, respectively. There was no income tax benefit recognized in the consolidated statements of operations for stock-based compensation for the years ended December 31, 2014 and 2013.

There were 50,000 options granted in 2014 and 260,000 options granted in 2013.

Information regarding Bancorp’s stock option plan as of and for the years ended December 31, 2014 and 2013 is as follows:

	Shares			Weighted Average Exercise Price		Weighted Average Remaining Life		Aggregate Intrinsic Value
Options outstanding, December 31, 2012		81,000		$	4.23
Options granted		260,000			4.17
Options exercised		-			-
Options forfeited		(22,000	)		3.61
Options outstanding, December 31, 2013		319,000			4.23
Options granted		50,000			4.67
Options exercised		(700	)		3.37
Options forfeited		(40,100	)		3.93
Options outstanding, December 31, 2014		328,200			4.33		3.03	$	122,160
Options exercisable, December 31, 2014		129,695			4.16		1.75	$	60,033
Option price range at December 31, 2014		$3.37 to $5.31

The stock-based compensation expense amounts were derived using the Black-Scholes option-pricing model. The following weighted average assumptions were used to value options granted in current and prior periods presented.

	2014			2013
Expected life of options	5.5 years			5.0 years
Risk-free interest rate		1.76	%		1.09	%
Expected volatility		66.61	%		79.14	%
Expected dividend yield		0.00	%		0.00	%
Weighted average fair value of options granted	$	2.63		$	2.58

The expected life of options amount is based on the vesting period and the expiration date of the options granted. The Risk-free interest rate is based on the US Treasury’s five year Treasury note rate at the time of the option grant. The expected volatility is based on the closing common stock price of Bancorp over a five year period. The expected dividend yield is based on Bancorp’s current policy of not paying a common stock dividend. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility.

The following table summarizes the nonvested options in Bancorp’s stock option plan as of December 31, 2014.

	Shares			Weighted Average Exercise Price
Nonvested options outstanding, December 31, 2013		236,383		$	4.29
Nonvested options granted		50,000			4.67
Nonvested options vested		(47,778	)		4.35
Nonvested options forfeited		(40,100	)		3.93
Nonvested options outstanding, December 31, 2014		198,505		$	4.44

As of December 31, 2014, there was approximately $616,000 of total unrecognized stock-based compensation cost related to non-vested stock options, which is expected to be recognized over a period of fifty-eight months.