Note 12. Stock Based Compensation

Stock Incentive Plan

On May 19, 2009, the shareholders of the Company approved the Company's Stock Incentive Plan (the "Plan"), which superseded and replaced the Omnibus Stock Ownership and Long-Term Incentive Plan.

Under the Plan, stock options, stock appreciation rights, non-vested and/or restricted shares, and long-term performance unit awards may be granted to directors and certain employees for purchase of the Company's common stock. The effective date of the Plan is March 19, 2009, the date the Company's Board approved the Plan, and it has a termination date of December 31, 2019. The Company's Board may terminate, suspend or modify the Plan within certain restrictions. The Plan authorizes for issuance 350,000 shares of the Company's common stock. The Plan requires that options be granted at an exercise price equal to at least 100% of the fair market value of the common stock on the date of the grant. Such options are generally not exercisable until three years from the date of issuance and generally require continuous employment during the period prior to exercise. The options will expire in no more than ten years after the date of grant. The stock options, stock appreciation rights, restricted shares, and long-term performance unit awards for certain employees are generally subject to vesting requirements and are subject to forfeiture if vesting and other contractual provision requirements are not met. Effective January 1, 2000, the Omnibus Stock Ownership and Long-Term Incentive Plan for employees was amended and restated to include non-employee directors. The Company did not grant stock options during 2012 or 2011. At December 31, 2012, there were no options outstanding.

Restricted Shares

The restricted shares are accounted for using the fair market value of the Company's common stock on the date the restricted shares were awarded. The restricted shares issued to certain officers are subject to a vesting period, whereby, the restrictions on the shares lapse on the third year anniversary of the date the restricted shares were awarded. Compensation expense for these shares is accrued over the three year period. During the quarter ended March 31, 2010, the restricted shares previously issued to non-employee directors were no longer subject to a vesting period, and the previously deferred compensation expense on these shares was fully recognized during 2010. In 2012 and 2011, compensation expense for the non-employee director shares was recognized at the date the shares were granted.

During 2012, 2011 and 2010, the Company granted awards of non-vested shares to certain officers and vested shares (effective March 31, 2010) to non-employee directors under the above-described incentive plans: 11,925 shares, 9,714 shares and 9,784 shares of non-vested restricted stock to executive officers; and 5,632 shares, 4,752 shares and 5,553 shares of vested restricted stock to non-employee directors on February 16, 2012, and February 17, 2011 and March 5, 2010, respectively. Compensation expense for these non-vested shares amounted to $139,000 and $137,000, net of forfeiture, for the years ended December 31, 2012 and 2011, respectively. The restricted shares issued to non-employee directors are no longer subject to a vesting period. Compensation expense for non-employee director shares was $68,000 in both 2012 and 2011.

The Company granted performance-based stock rights relating to 11,925 shares, 9,714 shares and 9,784 shares to certain officers on February 16, 2012, February 17, 2011 and March 5, 2010, respectively, under the Plan. The performance-based stock rights are accounted for using the fair market value of the Company's common stock on the date the restricted shares were awarded, and adjusted as the market value of the stock changes. The performance-based stock rights shares issued to executive officers are subject to a vesting period, whereby the restrictions on the shares lapse on the third year anniversary of the date the restricted shares were awarded. The award for 2010 was subject to the Company reaching a predetermined return on average equity ratio for the final year of the vesting period as compared to a predetermined peer group of banks. The awards for 2012 and 2011 are subject to the Company reaching a predetermined three year performance average on the return on average equity ratio, also as compared to a predetermined peer group of banks. In the year ended December 31, 2012, previously accrued compensation expense of $169,000 for performance-based stock rights was reversed because the predetermined metrics were not attained partially offset by $51,000 of expense for metrics that were attained. The compensation expense for performance-based stock rights totaled $(118,000), $116,000 and $106,000 for the years ended December 31, 2012, 2011 and 2010, respectively.

A summary of the status of options granted under the plans is presented below:

	2012							2011					2010
	Number of Shares			Weighted Average Exercise Price		Aggregate Intrinsic Value (1)		Number of Shares			Weighted Average Exercise Price		Number of Shares			Weighted Average Exercise Price

Outstanding at January 1,		23,732		$	13.00				42,266		$	10.84		62,480		$	9.96
Granted		-							-					-
Exercised		-							(18,534	)		8.07		(20,214	)		8.12
Expired		(23,732	)											-
Forfeited		-							-					-
Outstanding at December 31,		-		$		$	-		23,732		$	13.00		42,266		$	10.84
________________
Weighted-average fair value per option of options granted during the year	$	-						$	-							$	-

A summary of the status of the Company's non-vested restricted shares granted under the above-described plans is presented below:

	2012					2011					2010
	Shares			Weighted Average Grant Date Fair Value		Shares			Weighted Average Grant Date Fair Value		Shares			Weighted Average Grant Date Fair Value
Non-vested at January 1,		32,572					33,772					47,282

Granted		17,557		$	12.08		14,466		$	14.30		15,337		$	13.78
Vested		(18,706	)				(15,666	)				(28,847	)
Forfeited		-					-					-
Non-vested at December 31,		31,423					32,572					33,772

As of December 31, 2012, there was $158,000 of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the plans. This type of deferred compensation cost is recognized over a period of three years.

A summary of the status of the Company's non-vested performance-based stock rights is presented below:

	2012					2011				2010
	Performance Based Stock Rights			Weighted Average Fair Value at 12/31/2012		Performance Based Stock Rights		Weighted Average Fair Value at 12/31/2011		Performance Based Stock Rights		Weighted Average Fair Value at 12/31/2010
Non-vested at January 1,		32,572					22,858			13,074

Granted		11,925					9,714				9,784
Vested		(13,074	)				-				-
Forfeited		-					-				-
Non-vested at December 31,		31,423		$	13.30		32,572	$	12.44		22,858		$	11.65

As of December 31, 2012, there was $418,000 of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the plans. This type of deferred compensation cost is recognized over a period of three years dependent upon management reaching predetermined goals. At this time, it is uncertain that these goals will be attained. If the goals are not achieved, stock rights for 9,784 shares will be forfeited, reducing the unrecognized compensation to $288,000.