Equity Incentive Plan

12 Months Ended

Dec. 31, 2011

Equity Incentive Plan Disclosure [Abstract]

Equity Incentive Plan Disclosure [Text Block]

11. Equity Incentive Plan

In 2005, stockholders of the Company approved the Naugatuck Valley Financial Corporation 2005 Equity Incentive Plan (the “Incentive Plan”). Under the Incentive Plan, the Company may grant up to 371,794 stock options and 148,717 shares of restricted stock to its employees, officers and directors for an aggregate amount of up to 520,511 shares of the Company’s common stock for issuance upon the grant or exercise of awards. Both incentive stock options and non-statutory stock options may be granted under the Incentive Plan. Through December 31, 2011, the following awards have been made:

	Grant Date
	July 26,		December 18,		March 20,		March 21,		July 26,
	2008		2007		2007		2006		2005
Option awards
Awarded		997		1,995		7,483		6,485		353,799
Exercise price	$	11.12	$	11.12	$	12.51	$	11.12	$	11.12
Maximum term		10		10		10		10		10
Restricted stock awards
Awarded		997		2,993		1,995		1,496		139,404

Stock option awards have been granted with an exercise price equal to the greater of the market price of the Company’s stock at the date of grant, or $11.12, which was the market price of the Company’s stock at the date stock option awards were initially granted under the Incentive Plan. Stock options and restricted stock awards are considered common stock equivalents for the purpose of computing earnings per share on a diluted basis.

A summary of the status of outstanding stock options at December 31, 2011 and 2010 and changes therein was as follows:

	2011					2010					2009
				Weighted					Weighted					Weighted
	Number			Average		Number			Average		Number			Average
	of			Exercise		of			Exercise		of			Exercise
	Shares			Price		Shares			Price		Shares			Price
Options outstanding at beginning of year		325,582		$	11.16		352,652		$	11.16		352,802		$	11.15
Granted		-			-		-			-		-			-
Forfeited		-			-		(5,414	)		11.12		-			-
Exercised		-			-		-			-		-			-
Expired		(11,325	)		11.12		(21,656	)		11.12		(150	)		11.12
Options outstanding at end of year		314,257			11.16		325,582			11.16		352,652			11.15
Options exercisable at end of year		311,959			11.15		319,894			11.14		277,935			11.16
Weighted-average fair value of options granted during the year					N/A					N/A					N/A

The Company records share-based compensation expense related to outstanding stock options and restricted stock awards based upon the fair value at the date of grant over the vesting period of such awards on a straight-line basis. Both stock options and restricted stock awards vest at 20% per year beginning on the first anniversary of the date of grant.

The fair value of each restricted stock allocation, based on the market price at the date of grant, is recorded to unearned stock awards. Compensation expenses related to unearned restricted shares are amortized to compensation, taxes and benefits expense over the vesting period of the restricted stock awards.

The fair value of each stock option award is estimated on the date of grant using the Black-Scholes option pricing model which includes several assumptions such as volatility, expected dividends, expected term and risk-free rate for each stock option award.

In determining the expected term of the option awards, the Company has estimated the expected term of the options as being equal to the average of the vesting term plus the original contractual term. The Company estimated its volatility using the historical volatility of other, similar companies during a period of time equal to the expected life of the options. The risk-free rate for the periods within the contractual life of the options is based upon the U.S. Treasury yield curve in effect at the time of grant.

Assumptions used to determine the weighted-average fair value of stock options granted were as follows:

	July 26,			December 18,			March 20,			March 21,			July 26,
Grant date	2008			2007			2007			2006			2005
Dividend yield		2.74	%		2.20	%		1.60	%		1.89	%		1.44	%
Expected volatility		13.40	%		11.00	%		10.49	%		11.20	%		11.47	%
Risk-free rate		3.56	%		3.63	%		4.48	%		4.61	%		4.18	%
Expected life in years		6.5			6.5			6.5			6.5			6.5
Weighted average fair value of options at grant date	$	1.51		$	1.18		$	2.55		$	2.25		$	2.47

The Company recorded share-based compensation expense of $19,000, $285,000 and $532,000 for the years ended December 31, 2011, 2010 and 2009, respectively, in connection with the stock option and restricted stock awards. At December 31, 2011, the Company has approximately $2,000 of unrecorded option expense to be recognized over the remaining vesting period of the options.