Note 8. Share-based Compensation

9 Months Ended

Sep. 30, 2014

Notes

Note 8. Share-based Compensation

8.             Share-Based Compensation

Total share-based compensation expense was  $12,000 and $13,000 for the three months ended September 30, 2014 and 2013, respectively, and $40,000 and $30,000 for the nine months ended September 30, 2014 and 2013, respectively.  Related tax benefits of $4,000 and $4,000 were recognized for the three months ended September 30, 2014 and 2013, respectively, and $14,000 and $10,000 for the nine months ended September 30, 2014 and 2013, respectively.

Under the terms of the Company’s stock-based compensation plan, option exercise prices are equal to the quoted market price of the shares at the date of grant; option terms are ten years; and vesting periods range from three to four years.  The Company may also grant shares of restricted stock, stock appreciation rights and share-based performance awards.  Restricted shares are valued at the quoted market price of the shares at the date of grant, and have a three year vesting period.

Stock Options

The following table summarizes information regarding outstanding and exercisable options as of September 30, 2014:

		Outstanding		Exercisable
Number of options		166,616		144,393
Weighted average exercise price per share	$	10.50	$	10.69
Aggregate intrinsic value of options	$	266,000	$	227,000
Weighted average contractual term remaining		3.44 years		2.54 years

The Company’s stock option activity for the nine months ended September 30, 2014 is as follows:

	No. of	Weighted
	Shares	Average
	Under	Exercise
	Option	Price
Balance, December 31, 2013	222,285	$	11.46
Granted	13,334		10.80
Exercised	(6,667)		4.87
Expired	(62,336)		14.58
Balance, September 30, 2014	166,616	$	10.50

The fair value of an option award is estimated on the date of grant using the Black-Scholes option valuation model.  The weighted average grant-date fair-value of options granted during the nine months ended September 30, 2014 and 2013 was $5.70 and $4.04 per share, respectfully.  The assumptions set forth in the table below were used to value the stock options granted during the nine months ended September 30, 2014 and 2013:

		September 30,
		2014	2013
Weighted-average risk-free interest rate		2.72%	2.30%
Annual dividend rate per share	$	-	-
Weighted-average volatility factor of the Company's common stock		38.27	45.00
Weighted-average expected term of options		5 years	5 years

Compensation expense of $12,000 and $13,000 was recognized for the three months ended September 30, 2014 and 2013, respectively, and $40,000 and $30,000 for the nine months ended September 30, 2014 and 2013, respectively, for the portion of the fair value of stock options vesting during that period.

As of September 30, 2014, there was approximately $95,000 of total unrecognized compensation expense related to non-vested options which will be recognized over the remaining requisite service periods.