STOCK-BASED COMPENSATION

The Company has equity awards outstanding under two stock-based compensation plans; the 2006 Equity Compensation Plan (the “2006 Plan”) and the 2001 Stock Option Plan. These plans were primarily established to enhance the Company’s ability to attract, retain and motivate employees. The Company’s Board of Directors or, upon delegation, the Compensation Committee of the Board of Directors (“Compensation Committee”) has exclusive authority to select employees, advisors and others, including directors, to receive awards and to establish the terms and conditions of each award made pursuant to the Company’s stock-based compensation plans.

The 2006 Plan, approved by the Company’s shareholders in May 2006, was established to consolidate into one plan the benefits available under the 2001 Stock Option Plan and all other then existing share-based award plans (collectively, the “Previous Plans”). The Previous Plans continue with respect to awards made prior to May 2006. All shares of common stock available for future grant under the Previous Plans were transferred into the 2006 Plan. At December 31, 2011, there were 854,739 common shares available for future grant under the 2006 Plan. All awards granted subsequent to completion of the Company’s IPO on March 29, 2010 will be for shares of Class A common stock. All awards granted prior to the Company’s IPO are for shares of Class B common stock.

Stock Options. All options granted have an exercise price equal to fair market value, which is currently defined as the closing sales price for the stock as quoted on the NASDAQ Stock Market for the last market trading day preceding the date that the Company’s Board of Directors awards the benefit. Options may be subject to vesting as determined by the Company's Board of Directors or Compensation Committee, and can be exercised for periods of up to ten years from the date of grant.

Compensation expense related to stock option awards of $915, $813 and $588 was included in salaries, wages and benefits expense on the Company’s consolidated income statements for the years ended December 31, 2011, 2010 and 2009, respectively. Related income tax benefits recognized for the years ended December 31, 2011, 2010 and 2009 were $349, $311 and $225, respectively.

The weighted average grant date fair value of options granted was $4.30, $4.58 and $1.01 during the years ended December 31, 2011, 2010 and 2009, respectively. The fair value of each option award is estimated on the date of grant using the Black-Scholes option pricing model. The following table presents the weighted-average assumptions used in the option pricing model for the periods indicated:



Years ended December 31,	2011		2010		2009
Expected volatility	36.36	%	35.66	%	9.58	%
Expected dividend yield	3.17	%	2.98	%	3.28	%
Risk-free interest rate	3.05	%	3.08	%	2.64	%
Expected life of options (in years)	8.0		7.7		7.7

Expected dividend yield is based on the Company’s annualized expected dividends per share divided by the average common stock price. Risk-free interest rate is based on the U.S. treasury constant maturity yield for treasury securities with maturities approximating the expected life of the options granted on the date of grant. The 2011 and 2010 expected life of options is based on the Company’s historical exercise and post-vesting termination behaviors. Prior to 2010, the Company elected to use the “simplified” method to estimate expected life. The Company expected the historical volatility of its common stock would not be indicative of future volatility subsequent to the Company’s IPO, which was concluded on March 29, 2010. As such, in 2011 and 2010 the Company estimated expected volatility based on the share price volatility of a peer group of publicly-traded regional banks of similar size and performance as the Company over the expected life of options. Prior to 2010, expected volatility was based on the historical volatility of the Company’s common stock calculated using the quarterly appraised value of a minority interest over the expected life of options.

The following table summarizes stock option activity under the Company’s active stock option plans for the year ended December 31, 2011:



	Number of Shares		Weighted-Average Exercise Price		Weighted-Average Remaining Contract Life
Outstanding options, beginning of year	3,584,852		$	16.15
Granted	359,729		14.16
Exercised	(257,608	)	10.74
Forfeited	(54,500	)	14.91
Expired	(147,545	)	18.63
Outstanding options, end of year	3,484,928		$	16.26	5.04 years
Outstanding options exercisable, end of year	2,896,755		$	16.60	4.33 years

The total intrinsic value of fully-vested stock options outstanding as of December 31, 2011 was $889. The total intrinsic value of options exercised was $764, $757 and $2,035 during the years ended December 31, 2011, 2010 and 2009, respectively. The actual tax benefit realized for the tax deduction from option exercises totaled $285, $250 and $733 for the years ended December 31, 2011, 2010 and 2009, respectively. The Company received cash of $385, $649 and $144 from stock option exercises during the years ended December 31, 2011, 2010 and 2009, respectively. The Company redeemed common stock with aggregate values of $2,381, $1,643 and $3,183 tendered in payment for stock option exercises during the years ended December 31, 2011, 2010 and 2009, respectively.

Information with respect to the Company’s nonvested stock options as of and for the year ended December 31, 2011 follows:



	Number of Shares		Weighted-Average Grant Date Fair Value
Nonvested stock options, beginning of year	625,354		$	2.46
Granted	359,729		4.30
Vested	(342,347	)	2.09
Forfeited	(54,500	)	3.42
Nonvested stock options, end of year	588,236		$	3.71

As of December 31, 2011, there was $1,410 of unrecognized compensation cost related to nonvested stock options granted under the Company’s active stock option plans. That cost is expected to be recognized over a weighted-average period of 1.53 years. The total fair value of shares vested during 2011 was $713.

Restricted Stock Awards. Common stock issued under the Company’s restricted stock plan may not be sold or otherwise transferred until restrictions have lapsed or performance objectives have been obtained. During the vesting periods, participants have voting rights and receive dividends on the restricted shares. Upon termination of employment, common shares upon which restrictions have not lapsed must be returned to the Company.

Based on the substantive terms of each award, restricted shares are classified as equity or liability awards. The fair value of equity-classified restricted stock awards is being amortized as compensation expense on a straight-line basis over the period restrictions lapse or performance goals are met. Compensation cost for liability-classified awards is expensed each period from the date of grant to the measurement date based on the fair value of the Company’s common stock at the end of each period. Compensation expense related to restricted stock awards of $991, $847 and $436 was included in salaries, wages and benefits expense on the Company’s consolidated statements of income for the years ended December 31, 2011, 2010 and 2009, respectively. Related income tax benefits recognized for the years ended December 31, 2011, 2010 and 2009 were $379, $324 and $167, respectively.

The following table presents information regarding the Company’s restricted stock as of December 31, 2011:



	Number of Shares		Weighted-Average Measurement Date Fair Value
Restricted stock, beginning of year	155,410		$	15.76
Granted	130,904		14.20
Vested	(67,581	)	16.07
Forfeited	(22,527	)	15.10
Canceled	(5,436	)	18.63
Restricted stock, end of year	190,770		$	14.57

During 2011, the Company issued 130,904 restricted common shares as follows: 24,056 shares, of which 12,028 vest in varying percentages upon achievement of defined return on asset performance goals and 12,028 vest in varying percentages upon achievement of defined return on equity performance goals. All are contingent on employment as of December 31, 2013. Additionally, 106,848 shares were issued that vest one-third on each annual anniversary of the grant date through February 15, 2014 contingent on continued employment.

As of December 31, 2011, there was $1,718 of unrecognized compensation cost related to nonvested restricted stock awards expected to be recognized over a period of 1.66 years.