19. Employee Benefit Plans

The Bank has a 401(k) savings plan covering substantially all employees. Under the Plan, an employee can contribute up to 80 percent of their salary on a tax deferred basis. The Bank may also make discretionary contributions to the Plan. The Bank contributed $240 thousand and $244 thousand to the Plan in 2013 and 2012, respectively.

The Company has a deferred fee plan for Directors and executive management. Directors of the Company have the option to elect to defer up to 100 percent of their respective retainer and Board of Director fees, and each member of executive management has the option to elect to defer 100 percent of their year-end cash bonuses. Director and executive deferred fees totaled $44 thousand in 2013 and $42 thousand in 2012, and the interest paid on deferred balances totaled $19 thousand in 2013 and $17 thousand in 2012. In 2013, $22 thousand in deferred fees were distributed. No fees were distributed in 2012.

Certain members of management are also enrolled in a split-dollar life insurance plan with a post retirement death benefit of $250 thousand. Total expenses related to this plan were $4 thousand in 2013 and $5 thousand in 2012.

Stock Transactions

Stock Option Plans

The Company has incentive and nonqualified option plans, which allow for the grant of options to officers, employees and members of the Board of Directors. Transactions under the Company’s stock option plans for 2013 and 2012 are summarized in the following table:


	Shares		Weighted average exercise price		Weighted average remaining contractual life in years		Aggregate intrinsic value
Outstanding at December 31, 2011		643,206	$	6.80		5.3	$	517,867
Options granted		25,000		6.00
Options exercised		(117,240)		4.99
Options forfeited		(12,499)		6.06
Options expired		(22,135)		9.73
Outstanding at December 31, 2012		516,332	$	7.06		5.4	$	327,725
Options granted		37,500		6.58
Options exercised		(11,667)		6.62
Options forfeited		(8,333)		6.56
Options expired		(84,857)		8.84
Outstanding at December 31, 2013		448,975	$	6.70		5.6	$	739,951
Exercisable at December 31, 2013		364,143	$	6.76		4.8	$	637,387

Grants under the Company’s incentive and nonqualified option plans generally vest over 3 years and must be exercised within 10 years of the date of grant. The exercise price of each option is the market price on the date of grant. As of December 31, 2013, 1,720,529 shares have been reserved for issuance upon the exercise of options, 448,975 option grants are outstanding, and 1,184,313 option grants have been exercised, forfeited or expired, leaving 87,241 shares available for grant.

The fair values of the options granted during 2013 and 2012 were estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions:


	For the years ended December 31,
	2013			2012
Number of options granted		37,500			25,000
Weighted average exercise price	$	6.58		$	6.00
Weighted average fair value of options	$	3.19		$	2.33
Expected life in years (1)		5.75			5.07
Expected volatility (2)		51.40	%		43.61	%
Risk-free interest rate (3)		1.24	%		0.77	%
Dividend yield (4)		0.17	%		-	%

(1)

The expected life of the options was estimated based on historical employee behavior and represents the period of time that options granted are expected to be outstanding.

(2)

The expected volatility of the Company’s stock price was based on the historical volatility over the period commensurate with the expected life of the options.

(3)

The risk-free interest rate is the U.S Treasury rate commensurate with the expected life of the options on the date of grant.

(4)

The expected dividend yield is the projected annual yield based on the grant date stock price.

Upon exercise, the Company issues shares from its authorized but unissued common stock to satisfy the options. The following table presents information about options exercised during 2013 and 2012:


	For the years ended December 31,
	2013		2012
Number of options exercised		11,667		117,240
Total intrinsic value of options exercised	$	15,367	$	121,973
Cash received from options exercised		-		173,325
Tax deduction realized from options exercised		6,138		43,319

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


		Options outstanding						Options exercisable
Range of exercise prices		Options outstanding		Weighted average remaining contractual life (in years)		Weighted average exercise price		Options exercisable		Weighted average exercise price
$	0.00 - 4.00		119,750		5.4	$	3.87		119,750	$	3.87
	4.01 - 8.00		249,175		6.8		6.52		164,343		6.55
	8.01 - 12.00		35,399		0.9		10.13		35,399		10.13
	12.01 - 16.00		44,651		3.1		12.62		44,651		12.62
	Total		448,975		5.6	$	6.70		364,143	$	6.76

FASB ASC Topic 718, “Compensation - Stock Compensation,” requires an entity to recognize the fair value of equity awards as compensation expense over the period during which an employee is required to provide service in exchange for such an award (vesting period). Compensation expense related to stock options and the related income tax benefit for the years ended December 31, 2013 and 2012 are detailed in the following table:


	For the years ended December 31,
	2013		2012
Compensation expense	$	140,873	$	148,996
Income tax benefit		56,265		54,458

As of December 31, 2013, unrecognized compensation costs related to nonvested share-based compensation arrangements granted under the Company’s stock option plans totaled approximately $194 thousand. That cost is expected to be recognized over a weighted average period of 1.9 years.

Restricted Stock Awards

Restricted stock is issued under the stock bonus program to reward employees and directors and to retain them by distributing stock over a period of time. The following table summarizes nonvested restricted stock activity for the year ended December 31, 2013:


	Shares		Average grant date fair value
Nonvested restricted stock at December 31, 2012		90,975	$	6.10
Granted		42,500		7.12
Vested		(31,200)		5.88
Forfeited		(6,650)		6.16
Nonvested restricted stock at December 31, 2013		95,625	$	6.64

Restricted stock awards granted to date vest over a period of 4 years and are recognized as compensation to the recipient over the vesting period. The awards are recorded at fair market value at the time of grant and amortized into salary expense on a straight line basis over the vesting period. As of December 31, 2013, 471,551 shares of restricted stock were reserved for issuance, of which 232,838 shares are available for grant.

Restricted stock awards granted during the years ended December 31, 2013 and 2012 were as follows:


	For the years ended December 31,
	2013		2012
Number of shares granted		42,500		29,500
Average grant date fair value	$	7.12	$	6.07

Compensation expense related to the restricted stock for the years ended December 31, 2013 and 2012 is detailed in the following table:


	For the years ended December 31,
	2013		2012
Compensation expense	$	198,682	$	160,509
Income tax benefit		79,354		64,107

As of December 31, 2013, there was approximately $579 thousand of unrecognized compensation cost related to nonvested restricted stock awards granted under the Company’s stock incentive plans. That cost is expected to be recognized over a weighted average period of 2.9 years.