The Company follows FASB ASC 718, “Compensation – Stock Compensation” (“FASB ASC 718”) to account for all share-based payments to employees.

For purposes of calculating the fair value of each stock grant at the date of grant, the Company used the Black Scholes Option Pricing model. Options begin to become exercisable one year from the date of grant. Vesting periods range from one to five years. The maximum term ranges from five to ten years.

The Company’s 2004 Performance Stock Program (2004 PSP), approved by shareholders in 2004, authorizes the issuance of up to 700,000 shares of Company Common Stock. As of December 31, 2011, there were 493,842 shares available for grant. There are four forms of awards under the 2004 PSP. Stock options are one form of award. The Company has not issued any stock options since 2003, and does not anticipate issuing any for the foreseeable future. The other three forms of award which the Company has continued to issue are: Restricted Stock, Performance Shares and Cash Units.

Under the original Plan (1994 PSP) there were 700,000 shares authorized and 220,272 shares available for payment of dividend equivalents on shares already awarded under the 1994 PSP as performance shares at December 31, 2011.

Under the 2004 PSP and 1994 PSP (collectively, the PSPs), restricted shares of Common Stock, common stock equivalents or cash units may be awarded annually to officers and key employees. Based upon the occurrence of certain events, including the achievement of goals established by the Compensation Committee, the restrictions on the stock can be removed. Amounts charged to expense on account of restricted shares of Common Stock, common stock equivalents or cash units pursuant to the PSPs were $945,000, $1,190,000, and $962,000, for 2011, 2010, and 2009, respectively.

STOCK OPTIONS – The Company determined the fair value of each stock grant at the date of grant by using the Black Scholes Option Pricing model. Options began to become exercisable one year from the date of grant. Vesting periods ranged from one to five years. The maximum term ranged from five to ten years.

	2011					2010					2009
	Shares			Weighted Average Exercise Price		Shares			Weighted Average Exercise Price		Shares			Weighted Average Exercise Price
Options:
Outstanding, beginning of year		53,674		$	27.54		77,388		$	26.24		94,886		$	25.52
Forfeited		(17,024	)		27.95		(9,640	)		27.54		--			--
Exercised		(5,671	)		25.78		(14,074	)		20.42		(17,498	)		22.33
Outstanding, end of year		30,979		$	27.63		53,674		$	27.54		77,388		$	26.24

Exercisable, end of year		30,979		$	27.63		53,674		$	27.54		77,388		$	26.24

The intrinsic value of options exercised during the year ended December 31, 2011 was $9,000. The following table summarizes the price ranges of the options outstanding and options exercisable as of December 31, 2011:

	Options Outstanding and Exercisable
	Shares		Weighted Average Remaining Contractual Life (years)		Weighted Average Exercise Price
Range of prices:
$18.00 - $23.99		--		--		--
$24.00 - $26.99		13,433		0.9		25.78
$27.00 - $29.99		17,546		1.9		29.05
		30,979		1.5	$	27.63

The intrinsic value of exercisable options as of December 31, 2011 was approximately $856,000. The average remaining contractual term of exercisable options as of December 31, 2011 was approximately 1.5 years.

RESTRICTED STOCK AND COMMON STOCK EQUIVALENTS – The Company has granted restricted shares of Common Stock and Performance Shares to key members of management under the 2004 PSP. These Common Stock share awards provide the grantee with the rights of a shareholder, including the right to receive dividends and to vote such shares, but not the right to sell or otherwise transfer the shares during the restriction period. The value of these restricted shares is based on the market price of the Company’s Common Stock on the date of grant and compensation expense is recorded on a straight-line basis over the awards’ vesting periods.

RESTRICTED STOCK (Non-Performance-Based Awards) – The following tables summarize the non-performance-based restricted stock amounts and activity:

For the years ended December 31,	2011					2010
	Number of Shares			Grant Date Weighted Average Fair Value		Number of Shares			Grant Date Weighted Average Fair Value
Non-vested at beginning of year		4,079		$	25.43		8,449		$	25.18
Granted		--			--		--			--
Vested		(3,179	)		27.70		(4,370	)		24.95
Forfeited		--			--		--			--
Non-vested at end of year		900		$	19.69		4,079		$	25.43

Total stock-based compensation recorded in the statement of income related to the non-performance-based restricted stock awards was $78,000, $109,000, and $95,000 during the years ended December 31, 2011, 2010, and 2009, respectively. The Compensation Committee of the Board of Directors may approve retirement of key employees that trigger accelerating vesting.

RESTRICTED STOCK AND COMMON STOCK EQUIVALENTS (Performance-Based) – The following tables summarize the performance-based restricted stock amounts and activity:

For the years ended December 31,	2011					2010
	Number of Shares			Grant Date Weighted Average Fair Value		Number of Shares			Grant Date Weighted Average Fair Value
Non-vested at beginning of year		48,074		$	23.57		45,257		$	23.97
Granted		23,391			25.65		28,878			22.75
Vested		(24,323	)		22.95		(19,733	)		23.38
Forfeited		(11,037	)		22.75		(6,328	)		23.28
Non-vested at end of year		36,105		$	25.59		48,074		$	23.57

Total stock based compensation recorded in the Consolidated Statements of Income related to performance-based restricted stock awards was $867,000, $1,080,000, and $867,000 for the year ended December 31, 2011, 2010, and 2009, respectively.

The Company is estimating a forfeiture rate of 30%. Upon meeting specific performance targets, approximately 11,000 shares, reduced for actual performance targets achieved in 2011, will begin vesting in the first quarter of 2012 and the remaining earned shares will vest over three years. The cost is being recognized ratably over the vesting period. The aggregate intrinsic value of performance-based restricted stock as of December 31, 2011 was $518,000.