Employee Benefit and Deferred Compensation Plans

(In Thousands, Except Share Data)

The plan expense for the Company-sponsored noncontributory defined benefit pension plan (“Pension Benefits”) and post-retirement health and life plans (“Other Benefits”) for the periods presented was as follows:



	Pension Benefits						Other Benefits
	Three Months Ended						Three Months Ended
	September 30,						September 30,
	2013			2012			2013		2012
Service cost	$	—		$	—		$	8	$	6
Interest cost	222			216			21		16
Expected return on plan assets	(359		)	(298		)	—		—
Prior service cost recognized	—			—			—		—
Recognized actuarial loss	114			88			70		18
Net periodic benefit cost (return)	$	(23	)	$	6		$	99	$	40



	Pension Benefits						Other Benefits
	Nine Months Ended						Nine Months Ended
	September 30,						September 30,
	2013			2012			2013		2012
Service cost	$	—		$	—		$	21	$	18
Interest cost	597			646			48		48
Expected return on plan assets	(979		)	(894		)	—		—
Prior service cost recognized	—			—			—		—
Recognized actuarial loss	313			266			125		54
Net periodic benefit cost (return)	$	(69	)	$	18		$	194	$	120

In January 2013 and 2012, the Company granted stock options which generally vest and become exercisable in equal installments of 33 1/3% upon completion of one, two and three years of service measured from the grant date. The fair value of stock option grants is estimated on the grant date using the Black-Scholes option-pricing model. The Company employed the following assumptions with respect to its stock option grants in 2013 and 2012 for the nine month periods ended September 30, 2013 and 2012:



	2013 Grant			2012 Grant
Shares granted	52,500			172,000
Dividend yield	3.55		%	4.55		%
Expected volatility	37		%	37		%
Risk-free interest rate	0.76		%	0.79		%
Expected lives	6 years			6 years
Weighted average exercise price	$	19.14		$	14.96
Weighted average fair value	$	4.47		$	3.10

In connection with its merger with First M&F, the Company assumed First M&F's 2005 Equity Incentive Plan and Stock Option Plan, under which options to purchase an aggregate of 11,557 shares of the Company's common stock were outstanding as of the date of assumption. The assumed options had a weighted average exercise price of $21.16 and a weighted average remaining contractual life of 2.05 years at the date of assumption. The fair value of the stock options assumed on the date of assumption was $68 and was estimated using the Black-Scholes option-pricing model. No additional options or other forms of equity incentives will be granted or awarded under this plan.

The following table summarizes the changes in stock option grants as of and for the nine months ended September 30, 2013:



	Shares		Weighted Average Exercise Price
Options outstanding at beginning of period	1,279,244		$	18.79
Assumed from acquisition	11,557		21.16
Granted	52,500		19.14
Exercised	(216,805	)	19.63
Forfeited	(10,000	)	27.20
Options outstanding at end of period	1,116,496		$	18.59

The Company awards performance-based restricted stock to executives and time-based restricted stock to directors and other officers and employees under a long-term equity incentive plan. The performance-based restricted stock vests upon completion of a one-year service period and the attainment of certain performance goals. Performance-based restricted stock is issued at the target level; the number of shares ultimately awarded is determined at the end of each year and may be increased or decreased depending on the Company falling short of, meeting or exceeding financial performance measures defined by the Board of Directors. Time-based restricted stock vests at the end of the service period defined in the respective grant. The fair value of each restricted stock grant is the closing price of the Company's common stock on the day immediately preceding the grant date. The following table summarizes the changes in restricted stock as of and for the nine months ended September 30, 2013:



	Performance-Based Restricted Stock	Weighted Average Grant-Date Fair Value		Time- Based Restricted Stock		Weighted Average Grant-Date Fair Value
Nonvested at beginning of period	—	$	—	9,684		$	15.49
Granted	69,850	19.14		32,338		22.70
Vested	—	—		(9,038	)	15.49
Cancelled	—	—		(646	)	15.49
Nonvested at end of period	69,850	$	19.14	32,338		$	22.70

During the nine months ended September 30, 2013, the Company reissued 84,712 shares from treasury in connection with the exercise of stock options and issuance of restricted stock. The Company recorded total stock-based compensation expense of $885 and $329 for the three months ended September 30, 2013 and 2012, respectively, and $1,840 and $937 for the nine months ended September 30, 2013 and 2012, respectively.