Note 9: Share-based Compensation

The Company uses the fair value method of accounting for stock-based compensation. The fair value of stock options is estimated at the date of grant using the Black-Scholes option pricing model.

The following table is a summary of stock awards activity:

	2005 Plan													1999 Plan
				Restricted Stock					Stock Options					Stock Options
							Weighted
							Average
	Shares						Grant					Weighted					Weighted
	Available			Number			Date		Number			Average		Number			Average
	For			of			Fair		Of			Exercise		Of			Exercise
	Grant			Shares			Value		Shares			Price		Shares			Price
January 1, 2010		590,234			77,000		$	16.841		16,000		$	13.288		21,600		$	15.087
Awards Granted		(2,000	)		-			-		2,000			4.890		-			-
Vested		-			-			-		-			-		-			-
Forfeitures		12,400			(11,000	)		16.060		(1,400	)		16.051		(200	)		17.000
Expired		-			-			-		-			-		(5,600	)		12.127
June 30, 2010		600,634			66,000		$	16.971		16,600		$	12.043		15,800		$	16.018

January 1, 2011		603,634			63,000		$	16.966		16,600		$	12.043		15,800		$	16.018
Awards Granted		(3,000	)		-			-		3,000			4.120		-			-
Vested		-			(6,000	)		16.855		-			-		-			-
Forfeitures		4,800			(3,000	)		17.075		(1,800	)		13.840		-			-
Expired		-			-			-		-			-		-			-
June 30, 2011		605,434			54,000		$	17.006		17,800		$	10.526		15,800		$	16.018

Shares exercisable at June 30, 2011					-			-		9,200		$	14.506		15,800		$	16.018

The Company estimates a forfeiture rate of 9.45% (1.89% annual rate) for stock options issued to employees and a forfeiture rate of 5.45% (1.09% annual rate) for stock options issued to directors in determining net compensation costs. At June 30, 2011, there were $13 thousand in unrecognized compensation costs related to stock option awards.

The Company has issued restricted stock awards to certain executives and senior officers. The awards vest over periods of one to seven years and are forfeited in their entirety if the officer leaves the Company before the end of the vesting term. Additionally the restricted shares include a performance condition that may accelerate vesting at the achievement of a diluted earnings per share and net income target. Non-achievement of the performance condition during the vesting period would not prevent vesting of the shares. Dividends are paid quarterly to restricted stock grantees. At June 30, 2011, there were $167 thousand in unrecognized compensation costs. The unrecognized costs at June 30, 2011, are expected to be recognized over a weighted-average period of 1.1 years. The Company estimates that 4.00% (.57% annual rate) of the nonvested shares will be forfeited in determining net compensation expenses recognized.

In July 2010 the Board of Directors approved the reservation of 1,000,000 shares of authorized, unissued shares for issuance in lieu of cash for directors’ fees earned for 2010 and beyond. All shares are issued at market value and provide a convenient way for directors to receive shares of the Company based on the amount of directors’ fees that would otherwise be paid. Directors individually elect a percentage of their compensation, not less than 50%, to be received in common stock with the balance of the fees being paid in cash each quarter. For the first half of 2010, the Board authorized the issuance of 18,681 shares, which were issued in July 2010, to directors in lieu of cash director fees. For the first quarter of 2011, 8,967 shares were issued to directors in lieu of fees. For the second quarter of 2011, 9,617 shares were issued to directors in lieu of fees.