Note 10. Stock Incentive Plans

The Company maintained two shareholder-approved Company Stock Incentive Plans providing for the grant of equity based incentive compensation to essentially all employees. The 1995 Plan authorized grants of up to 1,440,000 shares of common stock over a ten-year period beginning in 1996. The term of the 1995 Plan expired in February of 2006, and the last outstanding award of options was exercised in 2012. The 2005 Plan authorizes grants of up to 1,440,000 shares over a ten-year period beginning in 2005. Under both Plans, grants may take the form of stock awards, awards of options to acquire stock, stock appreciation rights, and other forms of equity based compensation; both options to acquire stock and stock awards were granted. The option price for all grants has been the current market price at the time of the grant.

Option Awards

During 2013, 2012 and 2011, the Company granted stock options to certain management employees. These grants consisted of incentive and non-qualified stock options, vesting 25% annually on the first through fourth anniversaries of the grant date, and having a maximum ten year life. Options granted prior to 2010 had various vesting schedules and maximum lives. In addition, during 2013 the Company granted stock options to a recently hired officer. This grant consisted of both incentive and non-qualified stock options, vesting 25% annually on the third, fourth, fifth and sixth anniversaries of the grant date, and having a maximum seven year life. These grants were accounted for as equity-classified stock options.

The fair values of these grants were estimated at the respective grant dates using a Black-Scholes option-pricing model with the following assumptions (for 2013, the assumptions shown represent the weighted average of the two valuations):

	2013			2012			2011
Dividend rate		2.38	%		3.05	%		1.99	%
Risk-free interest rate		1.15	%		1.22	%		2.73	%
Expected lives of options	6.14 years			6.25 years			6.25 years
Price volatility		40.66	%		38.80	%		38.45	%

Volatility is based on the historical volatility of the price of the Company’s stock over the expected term of the options. The expected term represents the period of time that the options granted are expected to be outstanding. The risk free rate is based on the U.S. Treasury yield curve, in effect at the date the fair value of the options is calculated, with an equivalent term.

Management has made an estimate of expected forfeitures and recognizes compensation costs only for those awards expected to vest. Compensation cost recognized in 2013, 2012 and 2011 totaled $612 thousand, $561 thousand and $601 thousand, respectively, and the income tax benefit for option-based compensation arrangements recognized in 2013, 2012 and 2011 was $134 thousand, $129 thousand and $80 thousand, respectively.

A summary of outstanding options at December 31, 2013, 2012 and 2011, and changes during the years ended on those dates, is as follows:

	Options			Weighted Average Grant Price Per Option		Fair Value Per Option

Outstanding December 31, 2010		341,108			19.69

Granted		81,343			16.58	$	5.62
Cancelled		(10,557	)		21.87
Exercised		(5,000	)		7.34
Outstanding December 31, 2011		406,894		$	19.16

Granted		151,522			10.82	$	3.02
Cancelled		(8,728	)		25.26
Exercised		(55,000	)		7.34
Outstanding December 31, 2012		494,688		$	17.82

Granted		133,048			13.84	$	4.33
Cancelled		(10,591	)		25.26
Exercised		(66,638	)		16.82
Outstanding December 31, 2013		550,507		$	16.71

There were options for 553,514 shares outstanding at December 31, 2013 at a weighted average exercise price of $16.76 per share, an aggregate intrinsic value of $4.9 million and a weighted-average remaining contractual life of 6.3 years. There were options for 217,156 shares exercisable at December 31, 2013 at a weighted average exercise price of $20.49 per share, an aggregate intrinsic value of $1.1 million and a weighted-average remaining contractual life of 4.3 years. The aggregate intrinsic value represents the total pretax intrinsic value of in-the-money options, based on the Company’s closing stock price of $25.67 as of December 31, 2013.

During 2013, the total fair value of options vested was $0.6 million; the total intrinsic value of options exercised was $0.3 million. The total cash received as a result of employee stock option exercises was $1.2 million. The tax benefit realized from these exercises was $0.1 million.

As of December 31, 2013, the total compensation cost related to non-vested options not yet recognized is $0.6 million, which will be recognized over a weighted-average period of 3.1 years.

Stock Awards

In September 2007, the Company granted 68,130 performance shares to all members of the Board of Directors and essentially all employees during 2007. Directors and senior management in the aggregate were granted 23,404 performance shares (“management shares”); all other employees in the aggregate were granted 44,726 performance shares (“employee shares”). Management shares can vest at the fifth, sixth, seventh or eighth anniversary of the grant date if, for the thirty day period ending on the day prior to the respective anniversary date, the average closing price of a share of the Company’s common stock exceeds a defined target price. The target price for each anniversary date is equal to the grant date market price ($20.50 per share) plus $1.64 for each year since the grant date. Shares will vest only if the target price is achieved and the recipient has remained employed through, or reached normal retirement age before, the anniversary date that the target price is achieved on. No shares have vested under these awards. In September 2013, employee shares expired without vesting and were cancelled.

The Company estimated expected forfeitures of 40% for management shares and 35% for employee shares. During 2011, the Company revised its estimate of management share forfeitures to 15%, adding $48 thousand to recorded compensation expense. During 2013, the Company finalized its adjustment for employee share forfeitures to 39%, which lowered recorded compensation expense by $40 thousand.

In June 2010, the Company made grants of 34,142 non-vested shares to 16 management employees. The shares vest 25% annually. The award was valued at the market price of the Company’s common stock on the date of grant ($16.50 per share). The Company also made a grant of 7,272 non-vested shares to the non-employee members of the Company’s Board of Directors, valued at the market price of the Company’s common stock on the grant date ($16.50 per share). The shares vest 33% annually.

In February 2011, 2012 and 2013 the Company made grants of 54,075 and 66,384 and 62,283 non-vested shares to 18, 17 and 18 management employees, respectively. The shares vest 25% annually. The awards were valued at the market price of the Company’s common stock on the date of grant ($16.58, $10.82 and $13.84 per share, respectively). The Company also made grants of non-vested shares to the non-employee members of the Company’s Board of Directors. The Company granted 8,448, 14,784 and 11,560 shares in 2011, 2012 and 2013, respectively, valued at the market price of the Company’s common stock on the grant date ($16.58, $10.82 and $13.84 per share, respectively). The shares vest 33% annually.

In April 2011, May 2012 and May 2013, the Company made grants of non-vested shares to selected other employees. The Company granted 16,184 shares, of which 8,159 were vested and distributed immediately, in April 2011; granted 38,186 shares, of which 14,040 were vested and distributed immediately, in May 2012; and granted 24,843 shares, of which 9,567 were vested and distributed immediately, in May 2013. The remaining shares in each award vest in various schedules over four years. The awards were valued at the market price of the Company’s common stock on the date of grant ($18.06, $10.51 and $17.48 per share in 2011, 2012 and 2013, respectively).

A summary of outstanding share grants at December 31, 2013, 2012, and 2011, and changes during the years ended on those dates, is as follows:

	Shares

Outstanding December 31, 2010		94,100

Granted		78,707
Cancelled		(6,733	)
Vested and issued		(18,931	)
Outstanding December 31, 2011		147,143

Granted		119,354
Cancelled		(8,098	)
Vested and issued		(45,045	)
Outstanding December 31, 2012		213,354

Granted		98,686
Cancelled		(30,994	)
Vested and issued		(67,956	)
Outstanding December 31, 2013		213,090

Compensation cost recognized for share awards during 2013, 2012 and 2011, was $1.3 million, $1.3 million and $1.1 million, respectively. The income tax benefit for share-based compensation arrangements was $0.5 million, $0.3 million, and $0.4 million for 2013, 2012 and 2011.

As of December 31, 2013, the total compensation cost related to non-vested share awards not yet recognized is $1.9 million which will be recognized over a weighted-average period of 2.4 years.