4.	Stock-Based Employee Compensation Plans

Our shareholder-approved 2010 Equity Incentive Plan (the “2010 Plan”) provides for the grant of equity incentives, consisting of options, restricted shares and stock appreciation rights (“SARs”) to officers, other key employees and directors of the Company and the Bank. The 2010 Plan set aside, for the grant or awarding of such equity incentives, 400,000 shares of our common stock, plus an additional 158,211 shares of common stock which was equal to the total number of shares that were then available for the grant of equity incentives under our shareholder-approved 2008 and 2004 Plans (the “Previously Approved Plans”). At the same time, those 158,211 shares ceased to be issuable under the Previously Approved Plans. As a result, upon approval of the 2010 Plan by our shareholders, a total of 558,211 shares were available for the grant or awarding of equity incentives under the that plan.

Options to purchase a total of 1,493,465 shares of our common stock granted under the Previously Approved Plans were outstanding at June 30, 2012. Those plans had provided that, if any of those outstanding options were to expire or otherwise terminate, rather than being exercised, the shares that had been subject to those options would become available for the grant of new options under those plans. However, the 2010 Plan provides that if any of the outstanding options granted under the Previously Approved Plans expire or are terminated for any reason, then, the number of shares that would become available for grants or awards of equity incentives under the 2010 Plan would be increased by an equivalent number of shares, instead of becoming available for new equity incentive grants under the Previously Approved Plans. Assuming that all of the options that were outstanding under the Previously Approved Plans on the date the 2010 Plan was adopted were to expire or be cancelled, then the maximum number of shares that could be issued pursuant to equity incentives under the 2010 Plan would be 1,699,227 shares.

Stock options entitle the recipients to purchase common stock at a price per share that may not be less than 100% of the fair market value of the Company’s shares on the respective grant dates of the stock options. Restricted shares may be granted at such purchase prices or outright and on such other terms, including restrictions and Company repurchase rights, as are fixed by the Compensation Committee at the time awards of restricted shares are granted. SARs entitle the recipient to receive a cash payment in an amount equal to the difference between the fair market value of the Company’s shares on the date of vesting and a “base price” (which, in most cases, will be equal to fair market value of the Company’s shares on the date of grant), subject to the right of the Company to make such payment in shares of its common stock at their then fair market value. Options, restricted shares and SARs may vest immediately or in installments over various periods generally ranging up to five years, subject to the recipient’s continued employment or service or the achievement of specified performance goals, as determined by the Compensation Committee at the time it grants or awards the options, the restricted shares or the SARs. Stock options and SARs may be granted for terms of up to 10 years after the date of grant, but will terminate sooner upon or shortly after a termination of service occurring prior to the expiration of the term of the option or SAR. The Company will become entitled to repurchase some or all of the unvested restricted shares, at the same price that was paid for the shares by the recipient, if any, in the event of a termination of employment or service of the holder of such shares or if any performance goals specified in the award are not satisfied prior to the vesting of those shares. To date, the Company has not granted any restricted shares or any SARs.

Under ASC 718-10, we recognize in our statements of operations the fair values of the options or any restricted shares that we grant as compensation cost over their respective service periods.

The fair values of the options that were outstanding at June 30, 2012 under the 2010 Plan or the Previously Approved Plans (collectively referred to as the “Plans”) were estimated as of their respective dates of grant using the Black-Scholes option-pricing model. For additional information regarding the Company’s stock based compensation plans, refer to Note 12 – “Stock-Based Employee Compensation Plans” in the Notes to Consolidated Financial Statement included in the Company’s 2011 10-K. The table below summarizes the weighted average assumptions used to determine the fair values of the options granted during the following periods:


	Three Months Ended June 30,						Six Months Ended June 30,
Assumptions with respect to:	2012			2011			2012			2011
Expected volatility		40	%		40	%		40	%		40	%
Risk-free interest rate		1.54	%		2.74	%		1.54	%		2.74	%
Expected dividends		0.26	%		0.26	%		0.26	%		0.26	%
Expected term (years)		6.6 – 8.2			6.6 – 8.2			6.6 – 8.2			6.6 – 8.2
Weighted average fair value of options granted during period	$	1.54		$	2.00		$	1.54		$	2.00

The following tables summarize the stock option activity under the Plans during the six months ended June 30, 2012 and 2011, respectively.


	Number of Shares			Weighted- Average Exercise Price Per Share		Number of Shares			Weighted- Average Exercise Price Per Share
	2012					2011
Outstanding – January 1,		1,153,741		$	7.35		1,177,642		$	7.57
Granted		421,500			4.88		45,500			4.34
Exercised		(5,328	)		3.16		—			—
Forfeited/Canceled		(100,066	)		7.5		(84,901	)		7.65

Outstanding – June 30,		1,469,847			6.74		1,138,241			7.43

Options Exercisable – June 30,		828,899		$	8.55		706,350		$	9.72

Options to purchase 128 and 5,328 share of common stock were exercised during the three and six months ended June 30, 2012, respectively. There were no options exercised to purchase shares of common stock in the three and six months ended June 2011. The fair values of options vested during the six months ended June 30, 2012 and 2011 were $158,300 and $55.000, respectively.

The following table provides additional information regarding the vested and unvested options that were outstanding at June 30, 2012.


	Options Outstanding as of June 30, 2012								Options Exercisable as of June 30, 2012⁽¹⁾
	Vested		Unvested		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)		Shares		Weighted Average Exercise Price
$ 2.97 – $5.99		350,498		635,806	$	4.06		8.67		350,498	$	3.48
$ 6.00 – $9.99		27,800		4,800		7.22		2.55		27,800		7.28
$10.00 – $12.99		310,100		—		11.23		1.63		310,100		11.23
$13.00 – $17.99		121,001		342		15.09		3.14		121,001		15.09
$18.00 – $18.84		19,500		—		18.06		3.59		19,500		18.06

		828,899		640,948	$	6.74		6.52		828,899	$	8.55

(1)	The weighted average remaining contractual life of the options that were exercisable as of June 30, 2012 was 4.56 years.

The aggregate intrinsic values of options that were outstanding and exercisable under the Plans at June 30, 2012 and 2011 were $1.2 million and $146,000, respectively.

A summary of the status of the unvested options as of December 31, 2011, and changes in the number of shares subject to and in the weighted average grant date fair values of the unvested options during the six months ended June 30, 2012, are set forth in the following table.


	Number of Shares Subject to Options			Weighted Average Grant Date Fair Value
Unvested at December 31, 2011		352,049		$	1.39
Granted		421,500			2.34
Vested		(105,111	)		1.47
Forfeited/Cancelled		(27,490	)		2.99

Unvested at June 30, 2012		640,948		$	1.99

The aggregate amounts of stock based compensation expense recognized in our consolidated statements of operations for the six months ended June 30, 2012 and 2011, were $132,000 and $106,000, respectively, in each case net of taxes. At June 30, 2012, the weighted average period over which nonvested awards were expected to be recognized was 1.32 years.

The following table sets forth the compensation expense which was expected to be recognized during the periods presented below in respect of non-vested stock options outstanding at June 30, 2012:


	Estimated Stock Based Compensation Expense
(Dollars in thousands)
For the years ending December 31,
Reminder of 2012	$	251
2013		462
2014		343
2015		109
2016		21

	$	1,186