STOCK-BASED COMPENSATION

9 Months Ended

Sep. 30, 2011

STOCK-BASED COMPENSATION

STOCK-BASED COMPENSATION

8.  STOCK-BASED COMPENSATION

Incentive Stock Options

Under the terms of the Company’s incentive stock option plans adopted in February 1999 and February 2002, options have been granted to certain key personnel that entitle each holder to purchase shares of the Company’s common stock. The option price is the higher of the fair market value or the book value of the shares at the date of grant.  Such options were exercisable commencing one year from the date of grant, at the rate of 25% per year, and expire within ten years from the date of grant. Any optionee-owned stock may be used as full or partial payment of the exercise price and shall be valued at the fair market value of the stock on the date of exercise of the option.

At September 30, 2011, incentive stock options for the purchase of 174,763 shares were outstanding and exercisable. The options outstanding and exercisable at September 30, 2011 had no intrinsic value. The total intrinsic value of options exercised and the total cash received from option exercises for the first nine months of 2011 were $11 thousand and $229 thousand, respectively. The Company recognized tax benefits resulting from option exercises for the nine months ended September 30, 2011 of $4 thousand. No options were exercised in 2010.  A summary of stock option activity follows:

	Number of Shares		Weighted-Average Exercise Price Per Share
Outstanding - January 1, 2011	235,286		$	16.15
Granted	—		—
Exercised	(21,551	)	$	10.62
Forfeited or expired	(38,972	)	$	12.89
Outstanding - September 30, 2011	174,763		$	17.57

The following summarizes shares subject to purchase from incentive stock options outstanding and exercisable as of September 30, 2011:

Range of Exercise Prices	Shares Outstanding	Weighted-Average Remaining Contractual Life	Weighted-Average Exercise Price		Shares Exercisable	Weighted-Average Exercise Price
$12.45 - $13.61	74,950	1.0 years	$	13.09	74,950	$	13.09
$19.16 - $22.63	99,813	2.9 years	$	20.93	99,813	$	20.93
	174,763	2.1 years	$	17.57	174,763	$	17.57

Restricted Stock Awards

Under the Company’s 2006 Equity Compensation Plan (the “2006 Plan”), the Company can award options, stock appreciation rights (“SARs”), restricted stock, performance units and unrestricted stock. The 2006 Plan also allows the Company to make awards conditional upon attainment of vesting conditions and performance targets. During the first nine months of 2011, the Company awarded 126,993 shares of restricted stock to certain key employees.

The restricted stock awards currently outstanding primarily vest one-third on each of the third through fifth anniversaries of the award date. The fair value of restricted stock awards vested during the first nine months of 2011 and 2010 was $539 thousand and $225 thousand, respectively. Based on an estimated forfeiture rate, of the 369,587 shares currently outstanding, 354,000 shares are expected to vest over the remaining vesting life. The Company recognizes compensation expense over the vesting period at the fair market value of the shares on the award date. If a participant’s service terminates for any reason other than death or disability, then the participant shall forfeit to the Company any shares acquired by the participant pursuant to the restricted stock award which remain subject to vesting conditions.

The total remaining unrecognized compensation cost related to nonvested shares of restricted stock is $2.5 million at September 30, 2011 and is expected to be expensed over the weighted average remaining vesting life of 2.4 years. These shares would vest immediately upon change of control of the Company. For the nine months ended September 30, 2011 and 2010, $509 thousand and $585 thousand, respectively, were recognized as compensation expense, net of estimated forfeitures. The Company recognized tax benefits resulting from the compensation expense for the nine months ended September 30, 2011 and 2010 of $173 thousand and $199 thousand, respectively.

A summary of restricted stock activity follows:

	Number of Shares		Weighted-Average Grant-Date Fair Value
Nonvested - January 1, 2011	313,563		$	9.85
Granted	126,993		$	10.74
Vested	(42,503	)	$	12.69
Forfeited or expired	(28,466	)	$	9.59
Nonvested - September 30, 2011	369,587		$	9.85

At September 30, 2011, 127,456 shares were reserved for possible issuance of awards of options, SARs, restricted stock, performance units and unrestricted stock.

Non-Plan Stock-Based Compensation

In May 2010, the Company granted an award of 26,777 shares of restricted stock at an average price of $10.27 to the newly appointed Chief Lending Officer of the Bank (the “CLO”). The restricted stock will vest over five years, with one third to vest on the third anniversary of the award date, one third to vest on the fourth anniversary of the award date and the remainder to vest on the fifth anniversary of the award date. The restricted stock award was granted to the CLO as an inducement material to employment with the Company.

In November 2006, the Company granted non-qualified stock options and restricted stock awards to the CEO, pursuant to the terms of his employment agreement. The non-qualified stock options to purchase 164,745 shares have an exercise price of $17.84 and are vesting 20% per year over five years. At September 30, 2011, 131,796 of these options were exercisable, but none have been exercised. The options outstanding and those exercisable at September 30, 2011 have no intrinsic value. The restricted stock awarded to the CEO totaled 83,612 shares and was awarded at an average price of $17.94 to vest in 20 equal quarterly installments over five years. The fair value of restricted stock awards vested during the nine months ended September 30, 2011 and 2010 was $225 thousand and $111 thousand, respectively.

A summary of restricted stock activity follows:

	Number of Shares		Weighted-Average Grant-Date Fair Value
Nonvested - January 1, 2011	39,312		$	12.72
Granted	—		—
Vested	(12,535	)	$	17.94
Nonvested - September 30, 2011	26,777		$	10.27

The total remaining unrecognized compensation cost related to nonvested options and shares of restricted stock is $217 thousand at September 30, 2011 and will be expensed over the weighted average remaining vesting life of 1.2 years. For the nine months ended September 30, 2011 and 2010, $398 thousand and $403 thousand, respectively, were recognized as compensation expense. The non-qualified stock options and the restricted stock awards were not issued as part of any of the Company’s registered stock-based compensation plans.