2. STOCK PLANS

At September 30, 2011, Bancorp maintained the 2002 Stock Incentive Plan (“2002 Plan”) which is shareholder approved and authorizes the grant of stock options, restricted stock awards and certain other stock based awards. The 2002 Plan permits the grant of stock options and restricted stock awards for up to 820,000 shares. As of September 30, 2011, 61,650 shares remained available for issuance, of which 49,764 shares may be allocated to restricted stock awards. Proportional adjustments were made to the per share and related amounts of shares, as well as the conversion and exercise rights of stock options and other awards made under the 2002 Plan, in connection with the Reverse Stock Split.

It is Bancorp’s policy to issue new shares for stock option exercises and restricted stock awards. Bancorp expenses stock options and restricted stock on a straight line basis over the applicable vesting term. Restricted stock granted under the 2002 Plan generally vests over a two to four year vesting period; however, certain grants have been made that vested immediately or over a one year period, including grants to directors.

All outstanding stock options have an exercise price that was equal to the closing market value of Bancorp’s stock on the date the options were granted. Options granted under the 2002 Plan generally vest over a two to four year vesting period; however, certain grants have been made that vested immediately, including grants to directors. Stock options have a 10 year maximum term.

The following table presents information on stock options outstanding for the period shown:

	Nine months ended
	September 30, 2011
			Weighted Average
	Common Shares		Exercise Price per share
Balance, beginning of period	306,529		$	66.89
Granted	-			-
Exercised	(6,377	)		11.55
Forfeited/expired	(40,155	)		55.97
Balance, end of period	259,997		$	69.93

The following table presents information on stock options outstanding for the periods shown, less estimated forfeitures:

	Nine months ended		Nine months ended
(Dollars in thousands, except share and per share data)	September 30, 2011		September 30, 2010
Stock options vested and expected to vest:
Number		253,461		300,907
Weighted average exercise price per share	$	69.93	$	66.65
Aggregate intrinsic value	$	174	$	-
Weighted average contractual term of options		4.4 years		4.9 years

Stock options vested and currently exercisable:
Number		252,990		259,838
Weighted average exercise price per share	$	70.14	$	73.70
Aggregate intrinsic value	$	179	$	-
Weighted average contractual term of options		4.3 years		4.3 years

Unearned compensation related to stock options		28		154

There were no stock option grants for the nine months ended September 30, 2011, and 190 stock options granted for the same period in 2010.

The following table presents information on restricted stock outstanding for the period shown:

	Nine months ended
	September 30, 2011
			Weighted Average Market
	Restricted Shares		Price at Grant
Balance, beginning of period	327,251		$	18.99
Granted	63,659			16.77
Vested	(96,727	)		22.29
Forfeited	(21,483	)		23.03
Balance, end of period	272,700		$	16.98

Weighted average remaining recognition period	2.6 years

The balance of unearned compensation related to restricted stock shares as of September 30, 2011, and December 31, 2010, was $3.8 million and $4.5 million, respectively.

The following table presents stock-based compensation expense for the periods shown:

	Three months ended				Nine months ended
	September 30,				September 30,
(Dollars in thousands)	2011		2010		2011		2010
Restricted stock expense	$	409	$	562	$	1,384	$	1,239
Stock option expense		14		38		68		164
Total stock-based compensation expense	$	423	$	600	$	1,452	$	1,403

The income tax benefit recognized in the income statement for restricted stock compensation expense in the three and nine months ended September 30, 2011, was $155,000 and $526,000, respectively, compared to no income tax benefit recognized in the income statement for restricted stock compensation expense for the three and nine months ended September 30, 2010.