12. Stock Plans

Under the Tompkins Financial Corporation 2009 Equity Plan ("2009 Equity Plan"), the Company may grant incentive stock options, non-qualified stock options, stock appreciation rights, shares of restricted stock and restricted stock units covering up to 902,000 common shares to certain officers, employees, and nonemployee directors. Prior to the adoption of the 2009 Equity Plan, the Company had similar stock option plans, which remain in effect solely with respect to unexercised options issued under these plans. The Company granted 168,745 equity awards to its employees in the second quarter of 2013. The Company granted 71,420 incentive stock options in the third quarter of 2012. These options were granted to VIST employees to replace outstanding and vested VIST employee stock options at the time of acquisition. The Company granted 155,725 equity awards to its employees in the third quarter of 2011. The third quarter 2011 awards included 37,725 shares of restricted stock and 118,000 stock appreciation rights. The second quarter of 2013 awards included 106,325 shares of restricted stock and 62,420 stock appreciation rights. The Company's practice is to deliver original issue shares of its common stock upon exercise of equity awards rather than treasury shares.

The Company uses the Black-Scholes option-valuation model to determine the fair value of each incentive stock option and stock appreciation right at the date of grant. This valuation model estimates fair value based on the assumptions listed in the table below. The risk-free interest rate is the interest rate available on zero coupon U.S. Treasury instruments with a remaining term equal to the expected term of the share option at the time of grant. The expected dividend yield is based on dividend trends and the market price of the Company's stock price at grant. Volatility is largely based on historical volatility of the Company's stock price. In general, the expected term is based upon historical experience of employee exercises and terminations as well as the vesting term of the grants. For the options granted in 2012, which are solely options granted to VIST employees to replace options outstanding at acquisition date, the expected term considered that the option grants were fully vested and in-the-money. The fair values of the grants are expensed over the vesting period.

	2013			2012			2011
Weighted per share average fair value at granted date	$	9.50		$	15.50		$	9.26
Risk-free interest rate		0.78	%		0.26	%		1.28	%
Expected dividend yield		4.00	%		3.80	%		4.10	%
Volatility		38.46	%		28.34	%		39.19	%
Expected life (years)		5.50			2.00			6.50

For the three and six months ended June 30, 2013, stock-based compensation expense related to stock options and stock appreciation rights was $150,000 and $375,000, respectively, compared to $246,000 and $554,000, respectively, for the same periods in 2012.

The following table presents the activity related to restricted stock awards for the six months ended June 30, 2013.

	Number of Shares			Weighted Average Exercise Price
Unvested at January 1, 2013	$	43,053		$	37.89
Granted		106,325			40.60
Forfeited		(619	)		38.67
Unvested at June 30, 2013	$	148,759		$	39.82

For the three and six months ended June 30, 2013, stock-based compensation expense related to restrcited stock awards was $111,000 and $193,000, respectively, compared to $65,000 and $134,000, respectively for the same periods in 2012.