Share-Based Compensation Plans

3 Months Ended

Mar. 31, 2013

Share-Based Compensation Plans [Abstract]

Share-Based Compensation Plans

(9.) SHARE-BASED COMPENSATION PLANS

The Company maintains certain stock-based compensation plans that were approved by the Company's shareholders and are administered by the Board, or the Management Development and Compensation Committee of the Board. The share-based compensation plans were established to allow for the grant of compensation awards to attract, motivate and retain employees, executive officers and non-employee directors who contribute to the success and profitability of the Company and to give such persons a proprietary interest in the Company, thereby enhancing their personal interest in the Company's success.

The Company awarded grants of 33,035 restricted shares to certain members of management during the three months ended March 31, 2013. Fifty percent of the shares subject to each grant will be earned based upon achievement of an EPS performance requirement for the Company's fiscal year ended December 31, 2013. The remaining fifty percent of the shares will be earned based on the Company's achievement of a relative total shareholder return ("TSR") performance requirement, on a percentile basis, compared to a defined group of peer companies over a three-year performance period ended December 31, 2015. The shares earned based on the achievement of the EPS and TSR performance requirements, if any, will vest based on the recipient's continuous service to the Company on December 31, 2015. The restricted stock awards do not have rights to dividends or dividend equivalents.

The grant-date fair value of the TSR portion of the award granted during the three months ended March 31, 2013 was determined using the Monte Carlo simulation model on the date of grant, assuming the following (i) expected term of 2.88 years, (ii) risk free interest rate of 0.42%, (iii) expected dividend yield of 3.59% and (iv) expected stock price volatility over the expected term of the TSR award of 37.2%. The grant-date fair value of all other restricted stock awards is equal to the closing market price of our common stock on the date of grant.

The following is a summary of restricted stock award activity for the three months ended March 31, 2013:

				Weighted
				Average
				Market
	Number of			Price at
	Shares			Grant Date
Outstanding at beginning of year	79,580		$	16.89
Granted	33,035			16.05
Vested	(30,048	)		16.67
Forfeited	(6,237	)		17.15
Outstanding at end of period	76,330		$	16.59

As of March 31, 2013, there was $675 thousand of unrecognized compensation expense related to unvested restricted stock awards that is expected to be recognized over a weighted average period of 2.0 years.

The Company uses the Black-Scholes valuation method to estimate the fair value of its stock option awards. There were no stock options awarded during 2013 or 2012. The following is a summary of stock option activity for the three months ended March 31, 2013 (dollars in thousands, except per share amounts):

					Weighted
				Weighted	Average
				Average	Remaining		Aggregate
	Number of			Exercise	Contractual		Intrinsic
	Options			Price	Term		Value
Outstanding at beginning of year	319,275		$	20.22
Exercised	(800	)		15.85
Expired	(29,616	)		21.65
Outstanding and exercisable at end of period	288,859		$	20.09	2.6 years	$	177

As of March 31, 2013, all compensation expense related to stock options had been fully recognized in previous periods.

The aggregate intrinsic value (the amount by which the market price of the stock on the date of exercise exceeded the market price of the stock on the date of grant) of option exercises for the three months ended March 31, 2013 and 2012 was $3 thousand and $2 thousand, respectively. The total cash received as a result of option exercises under stock compensation plans for three months ended March 31, 2013 and 2012 was $13 thousand and $26 thousand, respectively.

The Company amortizes the expense related to restricted stock awards over the vesting period. Share-based compensation expense is recorded as a component of salaries and employee benefits in the consolidated statements of income for awards granted to management and as a component of other noninterest expense for awards granted to directors. The share-based compensation expense included in the consolidated statements of income is as follows (in thousands):

	Three months ended
		March 31,
	2013		2012
Salaries and employee benefits	$	85	$	127
Other noninterest expense		17		15
Total share-based compensation expense	$	102	$	142