Stock Based Compensation

12 Months Ended

Dec. 31, 2011

Stock Based Compensation [Abstract]

STOCK BASED COMPENSATION

(10)    STOCK-BASED COMPENSATION

The Company has the following stock-based plans, all of which have been approved by the Company’s Board of Directors and shareholders:

• 1996 Nonemployee Directors’ Stock Option Plan (“1996 Plan”)

• 1997 Employee Stock Option Plan (“1997 Plan”)

• 2005 Amended and Restated Employee Stock Plan (“2005 Plan”)

• 2006 Nonemployee Director Stock Plan (“2006 Plan”)

• 2010 Nonemployee Director Stock Plan (“2010 Plan”)

In addition, in connection with the Ben Franklin acquisition in 2009, the Company agreed to convert, for a two-year period, the options granted to certain Ben Franklin employees prior to the acquisition to acquire Ben Franklin stock into options to acquire the Company’s stock (“BFBC Plan”).

The following table presents the amount of cumulatively granted stock options and restricted stock awards, net of forfeitures, through December 31, 2011:

	Authorized Stock Option Awards			Authorized Restricted Stock Awards			Total		Cumulative Granted, Net of Forfeitures				Total		Authorized but Unissued
									Stock Option  Awards		Restricted Stock  Awards
1996 Plan		300,000			N/A			300,000		199,000		N/A		199,000		(4	)
1997 Plan		1,100,000			N/A			1,100,000		1,013,671		N/A		1,013,671		(4	)
2005 Plan		(1	)		(1	)		1,650,000		513,800		285,222		799,022		850,978
2006 Plan		(2	)		(2	)		35,400		15,000		20,400		35,400		(4	)
2010 Plan		(3	)		(3	)		314,600		22,000		26,600		48,600		266,000
BFBC Plan		210,286			N/A			210,286		164,003		N/A		164,003		(4	)

(1) The Company may award up to a total of 1,650,000 shares as stock options or restricted stock awards.

(2) The Company may award up to a total of 50,000 shares as stock options or restricted stock awards. During 2010, the remaining 14,600 shares were transferred and available for issue under the 2010 Plan.

(3) The Company may award up to a total of 314,600 shares as stock options or restricted stock awards, inclusive of 14,600 shares which were transferred from the 2006 Plan.

(4) There are no shares available for grant under the 1996 Plan, 1997 Plan or BFBC Plan due to their expirations. The 1996 Plan and 1997 Plan have outstanding stock options exercisable despite the Plan expiration. The 2006 Plan has outstanding stock options exercisable despite the transfer of remaining authorized shares to the 2010 Plan.

The Company issues shares for stock option exercises and restricted stock awards from its pool of authorized but unissued shares. Under all of the Company’s stock-based plans the option exercise price is derived from trading value on the date of grant. Stock option awards granted to date under all plans expire through 2021.

The following table presents the pre-tax expense associated with stock option and restricted stock awards and the related tax benefits recognized for the years presented:

	For the Years Ended December 31,
	2011		2010		2009
	(Dollars in Thousands)
Stock-based compensation expense
Stock options	$	662	$	436	$	395
Restricted stock awards(1)		1,502		1,018		298
Directors’ fee expense
Stock options		65		63		10
Restricted stock awards		254		149		71
TOTAL STOCK-BASED AWARD EXPENSE	$	2,483	$	1,666	$	774
Related tax benefits recognized in earnings	$	1,014	$	681	$	316

(1) Inclusive of compensation expense associated with time-vested and performance-based restricted stock awards.

Amounts recognized related to awards issued to directors are recognized as directors’ fees within other noninterest expense.

The Company has standard form agreements used for stock option and restricted stock awards. The standard form agreements used for the Chief Executive Officer and all other Executive Officers have previously been disclosed in Securities Exchange Commission filings and generally provide that: (1) any unvested options or unvested restricted stock vest upon a Change of Control; and, that (2) any stock options which vest pursuant to a Change of Control which is an event described in Section 280G of the Internal Revenue Code of 1986 will be cashed out at the difference between the acquisition price and the exercise price of the stock option.

Stock Options

The following table provides vesting period and contractual term information for stock option awards:

Date of Grant	Plan		Vesting Period From Date of Grant		Contractual Term
Prior to 12/15/2005		1997 and 1996		6 to 24 months		10 years
On 12/15/2005		1997 and 2005		Immediate		7 years
During 2006:		2005		28 months		7 years
		2006		21 months		7 years
During 2007:		2005		5 years		10 years
During 2008:		2005		5 years		10 years
During 2009:		2005		5 years		10 years
		2006		22 months		7 years
		BFBC		Immediate		2 years
During 2010:		2010		20 months		10 years
During 2011:		2005		3 years		10 years
		2010		20 months		10 years

The fair value of each option grant is estimated on the date of the grant using the Black-Scholes option-pricing model with the following assumptions used for grants under the identified plans:

• Expected volatility is based on the standard deviation of the historical volatility of the weekly adjusted closing price of the Company’s shares for a period equivalent to the expected life of the option.

• Expected life represents the period of time that the option is expected to be outstanding, taking into account the contractual term, historical exercise/forfeiture behavior, and the vesting period, if any. For all options granted on December 15, 2005 and later, the Company takes into effect historical experience when determining the expected life of the option.

• Expected dividend yield is an annualized rate calculated using the most recent dividend payment at time of grant and the Company’s average trailing twelve-month daily closing stock price.

• The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant for a period equivalent to the expected life of the option.

• The stock-based compensation expense recognized in earnings should be based on the amount of awards ultimately expected to vest, therefore a forfeiture assumption is estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Stock-based compensation expense recognized in 2011, 2010, and 2009 has been reduced for annualized estimated forfeitures of 5%, based on historical experience.

During the years ended December 31, 2011, 2010, and 2009 the Company has made the following awards of nonqualified options to purchase shares of common stock:

	For the Years Ended December 31,
	2011									2010			2009
Date of Grant	2/10/2011			2/17/2011			5/24/2011			5/25/2010			3/2/2009			4/10/2009			4/20/2009
Plan		2005			2005			2010			2010			2006			BFBC	(2)		2005
Shares granted		40,000			54,000			7,000			15,000			5,000			202,716			5,000
Vesting period(1)		3 years			3 years			20 months			3 years			5 years			Immediate			5 years
Expiration date		2/10/2021			2/17/2021			5/24/2021			5/25/2020			3/2/2019			4/10/2011			4/20/2019
Expected volatility		32	%		32	%		33	%		39	%		33	%		34	%		38	%
Expected life (Years)		5.5			5			5			5			5			2			5
Expected dividend yield		2.90	%		2.89	%		2.87	%		3.18	%		2.78	%		2.96	%		2.99	%
Risk free interest rate		2.57	%		2.27	%		1.81	%		2.01	%		1.82	%		0.95	%		1.80	%
Fair value	$	6.81		$	6.39		$	6.72		$	6.31		$	3.32		$	1.51 - $2.06		$	5.25

(1)	Vesting periods begin on the grant date unless otherwise noted.
(2)	The BFBC Plan grants were associated with a 2 year extension of previously issued grants by Ben Franklin which were accelerated and converted to options to purchase Independent Bank Corp. stock.

The following table presents relevant information relating to the Company’s stock options for the periods indicated:

	For the Years Ended December 31,
	2011		2010		2009
	(Dollars in Thousands)
Fair value of stock options vested based on grant date fair value	$	506	$	460	$	2,785
Intrinsic value of stock options exercised/forfeited		943		406		213
Cash received from stock option exercises		4,127		743		307
Tax benefit realized on stock option exercises		735		91		48
Weighted average grant date fair value of options granted (per share)		6.58		6.31		4.28

No cash was paid by the Company to settle equity instruments granted under stock-based compensation arrangements during the years ended December 31, 2011, 2010, and 2009.

A summary of the status of the Company’s Stock Option Grants for the year ended December 31, 2011 is presented in the table below:

	Outstanding									Nonvested
	Stock Option Awards			Weighted Average Exercise Price ($)		Weighted Average Remaining Contractual Term (years)		Aggregate Intrinsic Value(1)		Stock Option Awards			Weighted Average Grant Date Fair Value
	(Dollars in Thousands, Except per Share Data)
Balance at January 1, 2011		1,119,760		$	27.85						172,285		$	6.57
Granted		101,000			27.58						101,000			6.58
Exercised		(195,256	)		22.24						n/a			n/a
Vested/Released		n/a			n/a						(69,965	)		7.23
Forfeited		(100	)		33.00						—			—
Expired		(49,338	)		23.26						—			—
Balance at December 31, 2011		976,066	(2)	$	29.18		3.89	$	656		203,320	(5)	$	6.64
Options outstanding and expected to vest at December 31, 2011		968,037	(3)	$	29.19		3.86	$	654
Options exercisable at December 31, 2011		772,846	(4)	$	29.45		2.93	$	594
Unrecognized compensation cost, including forfeiture estimate															$	775
Weighted average remaining recognition period (years)																1.6

(1)	The aggregate intrinsic value in the preceding tables represents the total pre-tax intrinsic value, based on the average of the high price and low price at which the Company’s common stock traded on December 30, 2011 of $27.65 which would have been received by the option holders had they all exercised their options as of that date.
(2)	Inclusiveof 68,000 stock options outstanding to Directors.
(3)	Inclusiveof 67,864 stock options outstanding and expected to vest to Directors.
(4)	Inclusiveof 58,340 vested stock options outstanding to Directors
(5)	Inclusiveof 9,660 nonvested stock options outstanding to Directors

Restricted Stock

The Company grants both time-vested restricted stock awards as well as performance-based restricted stock awards. During the years ended December 31, 2011, 2010, and 2009 the Company has made the following restricted stock award grants:

Date	Shares Granted		Plan		Fair Value(1)		Vesting Period
Time-vested
2011
2/10/2011		27,750		2005	$	27.58	Ratably over 5 years from grant date
2/17/2011		33,000		2005	$	27.43	Ratably over 5 years from grant date
5/3/2011		3,000		2005	$	29.00	Ratably over 5 years from grant date
5/24/2011		9,800		2010	$	28.88	At the end of 5 years from grant date(2)
2010
2/11/2010		37,000		2005	$	23.39	Ratably over 3 years from grant date
2/25/2010		54,500		2005	$	25.12	Ratably over 3 years from grant date
5/25/2010		16,800		2010	$	23.07	At the end of 3 years from grant date(2)
2009
5/21/2009		93,000		2005	$	19.48	Ratably over 3 years from grant date
5/27/2009		5,600		2006	$	20.08	At the end of 5 years from grant date(2)
Performance-based
2011
8/8/2011		3,637		2005	$	23.81	On December 31, 2014

(1)

The fair value of the restricted stock awards are based upon the average of the high and low price at which the Company’s common stock traded on the date of grant. The holders of time-vested restricted stock awards participate fully in the rewards of stock ownership of the Company, including voting and dividend rights. The holders of performance-based restricted stock awards do not participate in the rewards of stock ownership of the Company until vested. The holders of all restricted stock awards are not required to pay any consideration to the Company for the awards.

(2)

These restricted stock grants will vest at the end of a three or five year period, or earlier if the director ceases to be a director for any reason other than cause, such as, for example, by retirement. If a non-employee director is removed from the Board for cause, the Company has ninety (90) days within which to exercise a right to repurchase any unvested portion of any restricted stock award from the non-employee director for the aggregate price of one dollar ($1.00).

The following table presents the fair value of restricted stock awards vesting during the periods presented:

	For the Years Ended December 31,
	2011		2010		2009
	(Dollars in Thousands)
Fair value of restricted stock awards upon vest	$	1,599	$	623	$	37

A summary of the status of the Company’s Restricted Stock Award Grants for the year ended December 31, 2011 is presented in the table below:

	Outstanding
	Restricted Stock Awards			Weighted Average Grant Price ($)
	(Dollars in Thousands, Except Per Share Data)
Balance at January 1, 2011		219,900		$	22.05
Granted		77,187			27.55
Vested/Released		(57,910	)		22.56
Forfeited		—			—
Expired		—			—
Balance at December 31, 2011		239,177	(1)	$	23.70
Unrecognized compensation cost (inclusive of directors’ fees), including forfeiture estimate						$	3,801
Weighted average remaining recognition period (years)							2.7

(1) Inclusive of 40,600 restricted stock awards outstanding to Directors.