STOCK INCENTIVE PLAN AND EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST

12 Months Ended

Dec. 31, 2012

Stock Incentive Plan And Employee Stock Ownership Plan And Trust

STOCK INCENTIVE PLAN AND EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST

11. Stock Incentive Plan and Employee Stock Ownership Plan and Trust

The Company has a Stock Incentive Plan which was approved in 1998 with 180,000 (299,475 adjusted for two 10% stock dividends, a 10% stock distribution, and a 25% stock dividend) shares reserved and a Stock Incentive Plan which was approved in 2010 with 300,000 shares reserved. Under both Plans, options are periodically granted to employees at a price not less than the fair market value of the shares at the date of grant. Employees become 20% vested after five years and then vest 20% each year until fully vested. The right to exercise each such 20% of the options is cumulative and will not expire until the tenth anniversary of the date of the grant.

On June 28, 2012 the Executive Committee granted options to purchase an aggregate of 9,000 shares to five employees. Fair value was estimated at the date of grant using the Black-Scholes option pricing model with the following assumptions: dividend yield 3.97%, historical volatility 33.94%, with an expected life of ten years, and a risk free interest rate of 1.60%. In addition, the Board of Director’s granted options to purchase 2,500 shares to one employee on September 24, 2012. Fair value was estimated at the date of grant using the Black-Scholes option pricing model with the following assumptions: dividend yield 3.97%, historical volatility 33.94%, with an expected life of ten years, and a risk free interest rate of 1.74%.

On March 24, 2011, the Executive Committee granted options to purchase 5,000 shares of stock to one employee. Fair value was estimated at the date of grant using the Black-Scholes option pricing model with the following assumptions used for the grant: dividend yield 4.02%, historical volatility 54.43%, risk free interest rate of 3.42%, and an expected life of 10 years. In addition, the Executive Committee granted options to purchase 96,000 shares of stock to twenty-two employees (including 2 Executive Officers) on June 23, 2011. Fair value was estimated at the date of grant using the Black-Scholes option pricing model with the following assumptions used for the grant: dividend yield 4.02%, historical volatility 54.43%, risk free interest rate of 2.93%, and an expected life of 10 years.

On September 24, 2010 options to purchase 33,000 shares were granted to twenty-one employees with an exercise price of $10.77.

All outstanding options under the 1998 Omnibus Stock Incentive Plan have been retroactively restated to reflect the effects of a 10% stock dividend declared on August 26, 2010.

A summary of the activity under the 1998 and 2010 Omnibus Stock Incentive Plans for the years ended December 31, 2012, 2011, and 2010 follows:

	2012					2011					2010
	Shares			Weighted Average Exercise Price		Shares			Weighted Average Exercise Price		Shares			Weighted Average Exercise Price
Outstanding, January 1		168,266		$	11.23		88,831		$	11.51		86,995		$	10.61
Granted		11,500			11.30		101,000			10.48		33,000			10.77
Expired		(4,000	)		13.75		(6,491	)		10.47		(1,581	)		9.60
Exercised		(1,299	)		8.54		(15,074	)		8.19		(29,583	)		8.13
Outstanding, December 31		174,467		$	11.20		168,266		$	11.23		88,831		$	11.51

Exercise Price:		Number of Options Outstanding		Weighted Average Remaining Contractual Life		Weighted Average Exercise Price		Intrinsic Value of Outstanding Options		Number of Options Exercisable		Weighted Average Exercise Price		Intrinsic Value of Exercisable Options
$	8.54		7,292		0.4	$	8.54	$	15,969		7,292	$	8.54	$	15,969
$	15.11		16,225		3.4	$	15.11	$	—		6,490	$	15.11	$	—
$	14.54		5,500		4.0	$	14.54	$	—		1,100	$	14.54	$	—
$	14.10		5,500		4.5	$	14.10	$	—		1,100	$	14.10	$	—
$	12.90		2,200		5.2	$	12.90	$	—		—	$	—	$	—
$	10.77		25,250		7.7	$	10.77	$	—		—	$	—	$	—
$	11.67		5,000		8.2	$	11.67	$	—		—	$	—	$	—
$	10.42		96,000		8.5	$	10.42	$	—		—	$	—	$	—
$	11.11		9,000		9.6	$	11.11	$	—		—	$	—	$	—
$	12.00		2,500		9.9	$	12.00	$	—		—	$	—	$	—
			174,467		7.27	$	11.20	$	15,969		15,982	$	12.00	$	15,969

The weighted average grant-date fair value of options granted in June and September of 2012 were $2.55 and $2.76, respectively. The weighted average grant-date fair value of options granted in March and June of 2011 were $4.62 and $4.03, respectively. The options granted in September 2010, had a weighted average grant date fair value of $6.13. The total intrinsic value of options exercised during the years ended December 31, 2012, and 2011, and 2010, were $2,845, $40,773 and $43,082, respectively.

A summary of the status of the Company’s nonvested shares as of December 31, 2012 is presented below:

Nonvested Shares:	Shares			Weighted Average Grant-Date Fair Value
Nonvested at beginning of year	163,006		$	4.50
Granted	11,500			2.60
Vested	(12,021	)		4.06
Forfeited	(4,000	)		5.04
Nonvested at end of year	158,485		$	4.38

The Company recognized compensation cost for the years ended December 31, 2012, 2011 and 2010 in the amount of $72,928, $64,587, and $50,721, respectively.

As of December 31, 2012 there was $530,420 of total unrecognized compensation cost related to nonvested share-based compensation arrangements granted under the Plan. The cost is expected to be recognized over a weighted average period of 7.27 years.

The Company established an Employee Stock Ownership Plan (ESOP) effective January 1, 1989. Each employee who has attained age twenty-one and has completed at least 1,000 hours of service in a Plan year is eligible to participate in the ESOP. Contributions are determined annually by the Board of Directors and amounts allocable to individual participants may be limited pursuant to the provisions of Internal Revenue Code Section 415. The Company recognizes expense when the contribution is approved by the Board of Directors. The total expenses amounted to $285,000, $240,000, and $240,000 for the years ended December 31, 2012, 2011 and 2010, respectively.