Equity Incentive Plan

3 Months Ended

Mar. 31, 2012

Equity Incentive Plan

3. Equity Incentive Plan

Stock Options

Under the Company’s 2007 Equity Incentive Plan (the “Plan”) approved by the Company’s stockholders at the annual meeting of the Company’s stockholders on May 30, 2007, the Company may grant options to directors, officers and employees for up to 743,936 shares of common stock. Both incentive stock options and non-qualified stock options may be granted under the Plan. The exercise price for each option is equal to the market price of the Company’s stock on the date of grant and the maximum term of each option is ten years. The stock options vest over five years in five equal installments on each anniversary of the date of grant.

The Company recognizes compensation expense over the vesting period, based on the grant-date fair value of the options granted. The fair value of each option granted is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions for options granted during the year ended December 31, 2011, and the three months ended March 31, 2012:

	Three Months			Year Ended
	Ended March 31,			December 31,
	2012			2011
Expected dividend yield		0.86	%		0.86	%
Weighted average expected term	6.5 years			6.5 years
Weighted average expected volatility		23.27	%		25.37	%
Weighted average risk-free interest rate		1.40	%		2.92	%

Expected volatility is based on the historical volatility of the Company’s stock and other factors. The risk-free interest rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of the grant. The Company uses historical data, such as option exercise and employee termination rates, to calculate the expected option life.

A summary of options under the Plan as of March 31, 2012, and changes during the three months then ended, is as follows:

					Weighted Average		Aggregate
					Remaining		Intrinsic
	Number of		Weighted Average		Contractual Term		Value
	Shares		Exercise Price		(in years)		(000's)
Outstanding at December 31, 2011		556,198	$	14.23		5.74	$	25
Granted		63,000		14.20		9.83		-
Exercised		-		-		-		-
Forfeited or expired		-		-		-		-
Outstanding at March 31, 2012		619,198	$	14.23		5.93	$	167
Exercisable at March 31, 2012		429,357	$	14.26		5.38	$	102
Exercisable at March 31, 2011		320,417	$	14.25		6.17	$	41

The Company granted 63,000 stock options in the three months ended March 31, 2012 with a fair value of $3.32. The weighted-average grant-date fair value of options granted during 2011 was $4.07, respectively. The weighted average grant-date fair value of the options outstanding and exercisable at March 31, 2012 and December 31, 2011 was $3.84 and $3.91, respectively. For the three months ended March 31, 2012 and 2011, share based compensation expense applicable to options granted under the Plan was $108,000 and $91,000 and the related tax benefit was $22,000 and $21,000, respectively. As of March 31, 2012, unrecognized stock-based compensation expense related to non-vested options amounted to $408,000. This amount is expected to be recognized over a period of 3.12 years.

Stock Awards

Under the Company’s 2007 Equity Incentive Plan, the Company may grant stock awards to its directors, officers and employees for up to 297,574 shares of common stock. The stock awards vest 20% per year beginning on the first anniversary of the date of grant. The fair market value of the stock awards, based on the market price at the date of grant, is recorded as unearned compensation. Unearned compensation is amortized over the applicable vesting period. The weighted-average grant-date fair value of stock awards as of March 31, 2012 is $14.28. The Company recorded compensation cost related to stock awards of approximately $192,000 and $307,000 in the three months ended March 31, 2012 and 2011, respectively. Stock awards with a fair value of $910,000, and $651,000 have vested during the years ended December 31, 2011 and 2010, respectively. No stock awards were granted prior to July 1, 2007. The Company granted 2,000 stock awards during the year ended December 31, 2011 with a grant price of $14.08. There were no awards granted by the company during the three months ended March 31, 2012. As of March 31, 2012, unrecognized stock-based compensation expense related to non-vested restricted stock awards amounted to $266,000. This amount is expected to be recognized over a period of 0.62 years.

A summary of the status of the Company’s stock awards as of March 31, 2012, and changes during the three months ended March 31, 2012, is as follows:

			Weighted
			Average
	Number of		Grant-Date
Nonvested Shares	Shares		Fair Value
Outstanding at December 31, 2011		55,346	$	14.28
Granted		-		-
Vested		400		14.08
Forfeited		-		-
Outstanding at March 31, 2012		54,946	$	14.28