Stock Incentive Plan

12 Months Ended

Dec. 31, 2011

Stock Incentive Plan

Stock Incentive Plan

Note 13 – Stock Incentive Plan

At the Annual Meeting of Stockholders held May 23, 2007, the stockholders approved the First Mid-Illinois Bancshares, Inc. 2007 Stock Incentive Plan (“SI Plan”).  The SI Plan was implemented to succeed the Company’s 1997 Stock Incentive Plan, which had a ten-year term that expired October 21, 2007, under which there are still options outstanding. The SI Plan is intended to provide a means whereby directors, employees, consultants and advisors of the Company and its subsidiaries may sustain a sense of proprietorship and personal involvement in the continued development and financial success of the Company and its subsidiaries, thereby advancing the interests of the Company and its stockholders.  Accordingly, directors and selected employees, consultants and advisors may be provided the opportunity to acquire shares of Common Stock of the Company on the terms and conditions established in the SI Plan.

On September 27, 2011, the Board of Directors passed a resolution authorizing and approving the Executive Long-Term Incentive Plan (“LTIP”). The LTIP was implemented to provide methodology for granting Stock Awards and Stock Unit Awards under the SI Plan to select senior executives of the Company or any subsidiary.

A maximum of 300,000 shares are authorized under the SI Plan. This amount reflects the Company’s stock split which occurred on June 29, 2007. Options to acquire shares are awarded at an exercise price equal to the fair market value of the shares on the date of grant and have a 10-year term.  Options granted to employees vest over a four-year period and options granted to directors vest at the time they are issued.  As of December 31, 2010, the Company had awarded 59,500 shares as stock options under the SI Plan.

During the third quarter of 2011, the Company awarded 17,409 shares as 50% Stock Awards and 50% Stock Unit Awards under the LTIP of the SI Plan. There were no shares awarded as stock options during 2011.

The fair value of options granted is estimated on the grant date using the Black-Scholes option-pricing model. Expected volatility is based on historical volatility of the Company’s stock and other factors.  The Company uses historical data to estimate option exercise and employee termination within the valuation model; separate groups of employees who have similar historical exercise behavior are considered separately for valuation purposes.  The expected term of options granted is derived from the output of the option valuation model and represents the period of time that options granted are expected to be outstanding.  The risk-free 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. There were no options granted during 2011, 2010 or 2009.

The following table summarizes the compensation cost, net of forfeitures, related to stock-based compensation:

	For the Years Ended December 31,
	2011			2010			2009
Stock and stock unit awards
Pre-tax compensation expense	$	92		$	-		$	-
Income tax benefit		(32	)		-			-
Stock and stock unit awards expense, net of income taxes	$	60		$	-		$	-
Stock options
Pre-tax compensation expense	$	52		$	52		$	53
Income tax benefit		(1	)		(1	)		(2	)
Stock options expense, net of income taxes	$	51		$	51		$	51
Total share-based compensation
Pre-tax compensation expense	$	144		$	52		$	53
Income tax benefit		(33	)		(1	)		(2	)
Total share-based compensation expense, net of income taxes	$	111		$	51		$	52

A summary of option activity under the SI Plan and the 1997 Stock Incentive Plan as of December 31, 2011, 2010 and 2009, and changes during the years then ended is presented below:

	2011
						Weighted-Average
				Weighted-Average		Remaining		Aggregate
	Shares			Exercise Price		Contractual Term		Intrinsic Value
Outstanding, beginning of year		239,532		$	22.50
Granted		-			-
Exercised		(11,392	)		10.67
Forfeited or expired		-			-
Outstanding, end of year		228,140		$	23.09		3.32	$	159,552
Exercisable, end of year		207,265		$	22.98		2.99	$	159,552

Stock options for 202,970 and 182,095 shares of common stock were not considered in computing the aggregate intrinsic value of outstanding shares and exercisable shares, respectively, for 2011 because they were anti-dilutive.

	2010
						Weighted-Average
				Weighted-Average		Remaining		Aggregate
	Shares			Exercise Price		Contractual Term		Intrinsic Value
Outstanding, beginning of year		289,033		$	20.54
Granted		-			-
Exercised		(49,500	)		11.05
Forfeited or expired		(1	)		8.37
Outstanding, end of year		239,532		$	22.50		4.16	$	204,345
Exercisable, end of year		204,407		$	22.18		3.58	$	204,345

Stock options for 202,970 and 167,845 shares of common stock were not considered in computing the aggregate intrinsic value of outstanding shares and exercisable shares, respectively, for 2010 because they were anti-dilutive.

	2009
						Weighted-Average
				Weighted-Average		Remaining		Aggregate
	Shares			Exercise Price		Contractual Term		Intrinsic Value
Outstanding, beginning of year		352,425		$	19.73
Granted		-			-
Exercised		(37,267	)		10.42
Forfeited or expired		(26,125	)		24.08
Outstanding, end of year		289,033		$	20.54		4.67	$	533,000
Exercisable, end of year		239,658		$	19.73		3.88	$	533,000

Stock options for 202,970 and 153,595 shares of common stock were not considered in computing the aggregate intrinsic value of outstanding shares and exercisable shares, respectively, for 2009 because they were anti-dilutive.

The total intrinsic value of options exercised during the years ended December 31, 2011, 2010 and 2009, was $90,000, $365,000, and $308,000, respectively.

A summary of the status of the Company’s shares subject to unvested options under the SI Plan and the 1997 Stock Incentive Plan as of December 31, 2011, 2010 and 2009, and changes during the years then ended, is presented below:

	2011					2010					2009
	Shares			Weighted-Average Grant-Date Fair Value		Shares			Weighted-Average Grant-Date Fair Value		Shares			Weighted-Average Grant-Date Fair Value
Unvested, beginning of year		35,125		$	3.29		49,375		$	3.34		75,953		$	3.90
Granted		-			-		-			-		-			-
Vested		(14,250	)		3.47		(14,250	)		3.47		(24,453	)		5.29
Forfeited		-			-		-			-		(2,125	)		3.70
Unvested, end of year		20,875		$	3.16		35,125		$	3.29		49,375		$	3.34

As of December 31, 2011 and 2010, there was $17,000 and $69,000, respectively, of total unrecognized compensation cost related to unvested options granted under the SI Plan and the 1997 Stock Incentive Plan.  That cost is expected to be recognized over a period of one year.  The total fair value of shares subject to options that vested during the years ended December 31, 2011, 2010, and 2009, was $49,000, $49,000, and $129,000, respectively.

The following table summarizes information about stock options under the SI Plan outstanding at December 31, 2011:

				Options Outstanding				Options Exercisable
Range of Exercise Prices		Number Outstanding		Weighted-Average Remaining Contractual Life		Weighted-Average Exercise Price		Number Exercisable		Weighted-Average Exercise Price
Below $17.50			25,171		0.96	$	12.11		25,170	$	12.11
	$17.50 to $25.00		91,469		3.41	$	21.34		78,220	$	21.06
Above $25.00			111,500		3.78	$	27.00		103,875	$	27.06
			228,140		3.32	$	23.09		207,265	$	22.98

In September 2011, as part of the LTIP approval, the Board approved a form of Stock Award/Stock Unit Award Agreement and a form of Stock Unit Award Agreement.  These forms set forth the terms and conditions of the Stock Awards and Stock Units granted to participants in the Plan as part of their Annual Performance Award and Cumulative Performance Award.  Each of the Annual Performance Award and Cumulative Performance Award consists of Stock Awards (50%) and Stock Units (50%), except that Awards to retirement-eligible employees are made 100% in Stock Units.  The target number of shares subject to the Stock Awards and/or Stock Units is adjusted by the Board at the end of each applicable performance period based on the actual level of attainment of performance goals previously set by the Board.  The Annual Performance Award has a one-year performance period and vest over four years. The Cumulative Performance Award has a three-year performance period and vest at the end of the three-year period.  Stock Awards are settled in shares while Stock Units are settled in cash (although Stock Units held by retirement-eligible employees are settled half in shares and half in cash).  The following table summarizes non-vested stock  and stock unit activity for the year ended December 31, 2011:

	2011
	Shares			Weighted-avg Grant-date Fair Value
Nonvested, beginning of year		-		$	-
Granted		17,409			18.70
Vested		(2,313	)		18.70
Forfeited		-			-
Nonvested, end of year		15,096		$	18.70
Fair value of shares vested				$	42,675

The fair value of the awards is amortized to compensation expense over the vesting periods of the awards (four years for annual awards and three years for cumulative awards) and is based on the market price of the Company’s common stock at the date of grant multiplied by the number of shares granted that are expected to vest.  As of December 31, 2011, there was $216,000, of total unrecognized compensation cost related to unvested stock and stock unit awards under the SI.  That cost is expected to be recognized over a period of three years.