Stock Based Compensation

6 Months Ended

Jun. 30, 2011

Stock Based Compensation

Stock Based Compensation

2.STOCK BASED COMPENSATION

Stock based compensation is recorded at fair value as of the date of grant and included in the salaries and benefits expense line item on the consolidated statements of operations and amounted to $132,750 and $102,052 during the six months ended June 30, 2011 and 2010, respectively. 

Prior to June 2, 2011, the Company's Stock Plan provided for annual, automatic grants to each non-employee member of the Board of Directors on the first business day each February of non-qualified stock options to acquire 3,000 shares of common stock.  Pursuant to this provision, on February 1, 2011, 15,000 options were granted to five non-employee board members with an exercise price per share equal to the market price on the date of grant of $13.30.  The stock options vest over a six-month period and expire in ten years.  The compensation cost associated with this grant of Board of Directors options is $93,750 and will be recognized as expense over the six-month vesting period.  On February 1, 2010, 15,000 options were granted to the five non-employee board members with an exercise price per share equal to the market price on the date of grant of $7.05. 

Pursuant to Board action taken on April 15, 2011 and shareholder approval on June 2, 2011, the Company's Stock Plan was amended to authorize annual grants of restricted stock or stock options, or both, as determined by the Board, and, pursuant to the amended Stock Plan, on June 2, 2011, 1,000 shares of restricted stock were granted to each of the five non-employee members of the Board of Directors.  The restricted stock will vest 100% after one year and will be subject to restrictions on resale for an additional year.  The compensation cost associated with the total grant of 5,000 shares is $73,300 that will be recognized as expense over the one-year vesting period. 

In addition, on February 25, 2010, 86,500 incentive stock options were granted to employees with an exercise price per share equal to the market price on the date of grant of $8.28.  The stock options vest over a 42-month period and expire in ten years.  The compensation cost associated with this grant of employee options is $282,355 to be recognized as expense over the 42-month vesting period. 

The number of shares that may be issued pursuant to options and restricted stock granted and the weighted average fair value during the periods presented were:

	Six Months Ended
	June 30, 2011		June 30, 2010
		Weighted		Weighted
		Average		Average
		Fair Value		Fair Value
	Grant	Per Share	Grant	Per Share
Board stock options	15,000	$6.25	15,000	$3.03
Board restricted stock	5,000	$14.66	-	-
Employee stock options	-	-	86,500	$3.79
Total shares	20,000		101,500

The fair value of stock options granted under the Company's 1994 Stock Plan during the first six months of 2011 and 2010 were estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions and results:

	2011	2010
Dividend yield	0.00%	0.00%
Weighted-average volatility	50%	43%
Risk-free interest rate	2.02%	2.66%
Expected term of stock options in years	5.5	6.0
Fair value of stock options on grant date	$    93,750	$  327,805

A summary of stock option activity as of June 30, 2011 and changes during the six months then ended is presented below:

			Weighted
		Weighted	Average
		Average	Remaining	Aggregate
	Number of	Exercise	Contractual	Grant Date
Stock Options	Shares	Price	Term	Fair Value
Outstanding at January 1, 2011	368,437	$9.21
Granted	15,000	$13.30
Exercised	(59,935)	$6.84
Expired/Forfeited	(3,250)	$7.23
Outstanding at June 30, 2011	320,252	$9.86	6.7 Years	$3,157,726
Exercisable at June 30, 2011	212,877	$10.67	5.8 Years	$2,272,021

A summary of stock option activity as of June 30, 2010 and changes during the six months then ended is presented below:

			Weighted
		Weighted	Average
		Average	Remaining	Aggregate
	Number of	Exercise	Contractual	Grant Date
Stock Options	Shares	Price	Term	Fair Value
Outstanding at January 1, 2010	403,244	$10.15
Granted	101,500	$8.10
Exercised	(50,369)	$5.68
Expired/Forfeited	(75,000)	$15.57
Outstanding at June 30, 2010	379,375	$9.10	6.5 Years	$3,454,094
Exercisable at June 30, 2010	216,000	$10.47	4.4 Years	$2,260,874

Employee Stock Ownership Plan – Prior to 2008, the Company contributed shares of its common stock to its Employee Stock Ownership Plan ("ESOP").  However, no contributions have been made from January 1, 2008 to date, and the Company has not taken any action to reinstate contributions to the ESOP.