Stock-Based Compensation

6 Months Ended

Jun. 30, 2011

Stock-Based Compensation

Stock-Based Compensation

6. Stock-Based Compensation

The Company maintains the 1998 Stock Option Plan (“1998 Plan”) and the 2006 Stock Plan (“2006 Plan”), and, in connection with the acquisition of Fidelity and its subsidiary Fidelity & Trust Bank (F&T Bank”), assumed the Fidelity 2004 Long Term Incentive Plan and 2005 Long Term Incentive Plan (the “Fidelity Plans”). No additional options may be granted under the 1998 Plan or the Fidelity Plans.

The 2006 Plan provides for the issuance of awards of incentive options, nonqualifying options, restricted stock and stock appreciation rights to selected key employees and members of the Board. As amended, 1,215,000 shares of common stock are subject to issuance pursuant to awards under the 2006 Plan.  Option awards are made with an exercise price equal to the average of the high and low price of the Company’s shares at the date of grant.

For awards that are service based, compensation expense is being recognized over the service (vesting) period based on fair value, which for stock option grants is computed using the Black Scholes model, and for restricted stock awards is based on the average of the high and low stock price of the Company’s shares at the date of grant. For awards that are performance based, compensation expense is recorded based on the probability of achievement of the goals underlying the grant. No performance based awards are outstanding at June 30, 2011.

In February 2011, the Company awarded 17,302 shares of restricted stock to employees.  The shares vest in five substantially equal installments beginning on the date of grant.

In February 2011, the Company awarded an employee options to purchase 1,500 shares which have a ten-year term and vest in five substantially equal installments on the first through fifth anniversary of the date of grant.

In March 2011, the Company awarded 78,860 shares of restricted stock to senior officers and to a Director. The Company awarded 63,075 shares that vest 100% upon the later of the date of repayment in full of all financial assistance received by the Company under the Troubled Asset Relief Program Capital Purchase Program (the “Capital Purchase Program”) or March 29, 2013. The remaining 15,785 shares vest 60% upon the second anniversary of the date of grant and 20% on the third and fourth anniversaries of the date of grant or upon the later date of repayment in full of all financial assistance received by the Company under the Capital Purchase Program.

At the Company’s Annual Shareholders meeting in May 2011, approval was received for an Employee Share Based Purchase Plan (ESPP), with 500,000 shares being reserved for issuance. The ESPP is expected to be implemented in October 2011.

Below is a summary of changes in shares under option pursuant to our equity compensation plans for the six months ended June 30, 2011 and 2010. The information excludes restricted stock units and awards.

	Six Months Ended June 30,
	2011				2010
	Shares		Weighted-Average Exercise Price		Shares		Weighted-Average Exercise Price
Beginning Balance	995,005		$	10.54	1,218,831		$	11.27
Issued	1,500		13.81		5,000		12.33
Exercised	(57,948	)	5.55		(35,296	)	3.86
Forfeited	(900	)	6.34		(1,966	)	6.49
Expired	(9,596	)	12.53		(26,488	)	14.93
Ending Balance	928,061		$	10.84	1,160,081		$	11.42

The following summarizes information about stock options outstanding at June 30, 2011. The information excludes restricted stock units and awards.

Outstanding:

				Weighted-Average
Range of	Stock Options	Weighted-Average		Remaining
Exercise Prices	Outstanding	Exercise Price		Contractual Life
$3.27    -  $8.10	358,845	$	6.47	6.13
$8.11    -  $11.07	244,607	10.15		2.93
$11.08  -  $15.43	211,426	12.72		2.74
$15.44  -  $26.86	113,183	22.66		4.43
	928,061	$	10.84	4.31

Exercisable:

Range of	Stock Options	Weighted-Average
Exercise Prices	Exercisable	Exercise Price
$3.27    -  $8.10	168,298	$	6.61
$8.11    -  $11.07	238,732	10.17
$11.08  -  $15.43	178,426	12.85
$15.44  -  $26.86	104,627	23.12
	690,083	$	11.96

The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option pricing model with the assumptions as shown in the table below used for grants during the six months ended June 30, 2011 and the years ended December 31, 2010, and 2009.

	Six Months Ended			Year Ended			Year Ended
	June 30, 2011			2010			2009
Expected Volatility	33.6		%	44.44		%	25.9% - 58.0%
Weighted-Average Volatility	33.6		%	44.44		%	26.74%
Expected Dividends	0.0		%	0.0		%	0.0%
Expected Term (In years)	7.5			8.5			3.5 - 8.5
Risk-Free Rate	3.00		%	1.01		%	0.84%
Weighted-Average Fair Value (Grant date)	$	2.74		$	6.23		$	2.06

The expected lives are based on the “simplified” method allowed by ASC Topic 718”Compensation,” whereby the expected term is equal to the midpoint between the vesting period and the contractual term of the award.

The total intrinsic value of outstanding stock options was $3.3 million at June 30, 2011. The total intrinsic value of stock options exercised during the six months ended June 30, 2011 and 2010 was $460 thousand and $287 thousand, respectively. The total fair value of stock options vested was $137 thousand and $349 thousand for the six months ended June 30, 2011 and 2010, respectively.

The Company recognized $474 thousand and $302 thousand in stock-based compensation expense for the six months ended June 30, 2011 and 2010, respectively, which is included in salaries and employee benefits. Stock-based compensation expense is recognized ratably over the requisite service period for all awards. Unrecognized stock-based compensation expense related to all stock-based awards totaled $2.2 million at June 30, 2011. At such date, the weighted-average period over which this unrecognized expense is expected to be recognized was 3.61 years.

The Company has unvested restricted stock award grants of 190,910 shares from the 2006 Plan at June 30, 2011.  Unrecognized stock based compensation expense related to restricted stock awards totaled $1.7 million at June 30, 2011. At such date, the weighted-average period over which this unrecognized expense was expected to be recognized was 2.26 years.  The following table summarizes the unvested restricted stock awards and units outstanding at June 30, 2011 and 2010.

	June 30, 2011
	Restricted Stock Units			Restricted Stock Awards
	Shares	Weighted-Average Grant Date Fair Value		Shares		Weighted-Average  Grant Date Fair Value
Unvested at Beginning	—	$	—	114,275		$	9.20
Issued	—	—		96,162		13.91
Forfeited	—	—		(423	)	11.99
Vested	—	—		(19,104	)	8.83
Unvested at End	—	$	—	190,910		$	11.60

	June 30, 2010
	Restricted Stock Units				Restricted Stock Awards
	Shares		Weighted-Average Grant Date Fair  Value		Shares		Weighted-Average Grant Date Fair  Value
Unvested at Beginning	7,642		$	15.21	49,585		$	6.88
Issued	—		—		81,600		10.35
Forfeited	(3,817	)	15.21		(301	)	10.35
Vested	(3,825	)	15.21		(15,897	)	7.77
Unvested at End	—		$	—	114,987		$	9.21