Stock-Based Compensation Plans

Stock-Based Compensation

On April 29, 2003 and May 1, 2012, the shareholders of the Company approved the 2003 Plan and 2012 Plan, respectively. The maximum number of shares of stock reserved and available for issuance under each the 2003 Plan and 2012 Plan is 800,000 shares. Awards may be granted in the form of incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock, deferred stock, unrestricted stock, performance shares and dividend equivalent rights, or any combination of the preceding, and the exercise price shall not be less than 100% of the fair market value on the date of grant in the case of incentive stock options, or 85% of the fair market value on the date of grant in the case of non-qualified stock options. No stock options are exercisable more than ten years after the date the stock option is granted. The exercise price of all options equaled the market price of the Company's stock on the date of grant.

Stock Option Awards

Stock options granted under the 2003 Plan and the 2012 Plan have been incentive stock options. Options granted vest pro rata over a 5 year period and have a contractual life of 10 years.

On the date of each grant, the fair value of each award is derived using the Black-Scholes option pricing model based on assumptions made by the Company as follows:


•	Dividend yield is based on the dividend rate of the Company’s stock at the date of grant.


•	Risk-free interest rate is based on the U.S. Treasury bond rate with a term equaling the expected life of the granted options.


•	Expected volatility is based on the historical volatility of the Company’s stock price.


•	Expected life represents the period of time that granted options are expected to be outstanding based on historical trends.

The following table presents the option pricing assumptions and the estimated fair value of the options using these assumptions:



	2013			2012			2011
Dividend yield	1.00		%	2.20		%	3.04		%
Weighted average risk-free interest rate	1.60		%	0.79		%	1.95		%
Weighted average expected volatility	52.32		%	53.31		%	51.90		%
Weighted average expected life in years	5.30			5.30			5.12
Weighted average fair value of options granted	$	15.97		$	13.00		$	12.30

Compensation expense is recognized on a straight-line basis over the option vesting period and totaled $134,000, $99,000 and $204,000 for the years ended December 31, 2013, 2012 and 2011, respectively. Unrecognized compensation cost for nonvested stock options, which reflects an estimated annualized average forfeiture rate of approximately 3% per year over the vesting period, totaled $190,000 at December 31, 2013, and is expected to be recognized over the remaining weighted-average vesting period of 2.4 years. The total intrinsic value of options exercised during the years ended December 31, 2013, 2012, and 2011 was $153,000, $146,000, and $16,000, respectively.

Stock option activity for 2013 is as follows:



	Number of Shares		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term	Aggregate Intrinsic Value
Options outstanding at January 1, 2013	139,400		$	32.97
Granted	1,000		41.11
Exercised	(22,100	)	31.24
Forfeited and expired	(6,350	)	33.23
Options outstanding at December 31, 2013	111,950		$	33.36	4.9	$	987
Options exercisable at December 31, 2013	77,000		$	34.06	4.0	$	637

A summary of the status of the Company’s nonvested stock options as of December 31, 2013 and changes during the year then ended is presented below:



	Awards		Weighted- Average Grant Date Fair Value
Nonvested at January 1, 2013	59,500		$	9.67
Granted	1,000		15.97
Vested	(20,400	)	9.64
Forfeited	(5,150	)	11.41
Nonvested at December 31, 2013	34,950		$	11.23

Restricted Stock Awards and Management Stock Purchase Plan

The Company issues restricted stock awards to certain key employees. Employees' shares vest pro-rata over three years, with requisite service conditions and no performance-based conditions to such vesting. The Company provides a MSPP to provide an opportunity for management employees to receive restricted shares of the Company’s common stock in lieu of their annual incentive bonus. Restricted shares under the MSPP are granted at a discount of one-third of the fair market value of the stock on the date of grant and cliff vests two years after the grant date. During the vesting period, dividends are accrued on the restricted stock and the recipients are entitled to vote these restricted shares.

Compensation expense recognized in connection with the restricted stock awards and MSPP is presented in the following table:



	Year Ended December 31,
	2013		2012		2011
Restricted stock awards	$	149	$	163	$	92
Management stock purchase plan grants	73		65		37
Total compensation expense	$	222	$	228	$	129
Related income tax benefit	$	78	$	80	$	45
Fair value of grants vested	$	229	$	121	$	106

The following table presents a summary of the activity related to restricted stock awards and the MSPP for the period indicated:



	Restricted Stock				MSPP
	Number of Shares		Weighted Average Grant Date Fair Value		Number of Shares		Weighted Average Grant Date Fair Value
Nonvested at January 1, 2013	10,017		$	34.84	12,052		$	10.69
Granted	6,325		33.72		7,801		11.75
Vested	(4,965	)	34.12		(5,395	)	11.03
Forfeited	(897	)	34.51		(238	)	11.32
Nonvested at December 31, 2013	10,480		$	34.53	14,220		$	11.14

At December 31, 2013, unrecognized compensation cost related to nonvested restricted stock awards and MSPP was $251,000 which is expected to be recognized over a weighted average period of 1.6 years.

Long-Term Performance Share Plan

The LTIP is intended to attract and retain executives who will contribute to the Company’s future success. The long-term performance period is a period of three consecutive years beginning on January 1 of the first year and ending on December 31 of the third year. Awards are based upon the attainment of certain performance targets on specific performance measures selected by the Compensation Committee and approved by the board of directors. The performance-based share units granted will vest only if certain revenue and expense goals or service conditions, as defined under the LTIP, are achieved. Failure to achieve the goals and service conditions will result in all or a portion of the shares being forfeited.

Compensation expense recognized in connection with the LTIP is presented in the following table:



	Year Ended December 31,
	2013		2012		2011
Compensation expense	$	200	$	174	$	672
Related income tax benefit	$	70	$	61	$	235
Fair value of grants vested	$	497	$	609	$	570

The following table presents a summary of the activity related to LTIP for the period indicated:



	Number of Shares		Weighted Average Grant Date Fair Value
Nonvested at January 1, 2013	61,623		$	35.25
Granted	22,165		36.81
Vested	(13,978	)	35.65
Forfeited	(25,018	)	35.47
Nonvested at December 31, 2013	44,792		$	35.78

Based on current performance levels, unrecognized stock compensation expense for the performance share awards was $338,000 with a weighted-average remaining amortization period of 0.9 years at December 31, 2013.

Defined Contribution Retirement Plan

The DCRP is an unfunded deferred compensation plan for the benefit of certain senior management employees of the Company. The Company’s Compensation Committee determines eligibility in the DCRP and annually, participants will receive a credit to an account administered by the Company of 10% of each participant’s annual base salary and bonus for the prior performance period. Annual credits to a participant’s account will be denominated in Deferred Stock Awards (the right to receive a share of common stock of the Company upon the satisfaction of certain restrictions) based on the fair market value of the common stock of the Company on the date of grant. Vesting occurs ratably from the date of participation until the participant reaches the age of 65, at which time the participant is 100% vested. Upon retirement or termination of employment, the participant will receive shares of common stock equal to the Deferred Stock Awards in the account multiplied by the vested percentage, reduced by the amount to be withheld for income taxes. The Company granted 2,304, 2,322, and 2,135 of Deferred Stock Awards during 2013, 2012 and 2011, respectively under the DCRP. Compensation expense totaled $40,000, $$37,000, and $20,000 for the years ended December 31, 2013, 2012, and 2011, respectively. Unrecognized stock compensation expense for the Deferred Stock Awards was $216,000 with a weighted-average remaining amortization period of 12.9 years at December 31, 2013.