16. STOCK PLANS AND STOCK BASED COMPENSATION

At December 31, 2012, the Company had a stock option plan, which also allows for the issuance of restricted stock awards, and a director deferred compensation plan. The stock option plan, which allows for the issuance of restricted stock awards, is part of the 2005 Stock Incentive Plan (“2005 Plan”).

Stock Options

The Company recorded expense related to stock options as follows:

December 31, (in thousands)	2012		2011		2010

Stock option expense	$	792	$	277	$	567

The stock options are incentive stock options with no disqualifying dispositions; therefore, no tax benefit was recognized related to the expense. No stock options were modified during the years ended December 31, 2012, 2011 and 2010.

The 2005 Plan permits the grant of stock options and restricted stock awards for up to 3,307,500 shares of common stock. The Company believes that such awards better align the interests of its employees with those of its shareholders. Option awards generally become fully exercisable at the end of five to six years of continued employment and must be exercised within one year from the date the options become exercisable. There were no Class B stock options outstanding during each of the periods presented. All stock options have an exercise price that is at least equal to the fair market value of the Company’s stock on the date the options were granted. All shares issued under the above mentioned plans came from authorized and unissued shares. Currently, the Company has a sufficient number of shares to satisfy expected share option exercises.

The fair value of each stock option granted is estimated on the date of grant using the Black-Scholes based stock option valuation model. This model requires the input of subjective assumptions that will usually have a significant impact on the fair value estimate. Expected volatilities are based on historical volatility of Republic’s stock and other factors. Expected dividends are based on dividend trends and the market price of Republic’s stock price at grant. Republic uses historical data to estimate option exercises and employee terminations within the valuation model. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve at the time of grant.

The fair value of stock options granted was determined using the following weighted average assumptions as of grant date:

	2012			2011			2010

Risk-free interest rate		1.04	%		2.29	%		2.66	%
Expected dividend yield		2.79	%		2.59	%		2.65	%
Expected stock price volatility		33.35	%		30.88	%		30.40	%
Expected life of options (in years)		6			6			6
Estimated fair value per share	$	5.62		$	5.56		$	5.20

A summary of stock option activity for 2012 follows:

						Weighted
				Weighted		Average
	Options			Average		Remaining		Aggregate
	Class A			Exercise		Contractual		Intrinsic
	Shares			Price		Term		Value

Outstanding, beginning of year		592,276		$	21.38
Granted		3,000			23.65
Exercised		(11,470	)		20.78
Forfeited or expired		(123,606	)		23.44
Outstanding, end of year		460,200		$	20.86		2.06	$	458,853

Fully vested and expected to vest		460,200		$	20.86		2.06	$	458,853
Exercisable (vested) at end of year		115,200		$	23.65		0.89	$	1,523

Information related to the stock option plan during each year follows:

December 31, (in thousands)	2012		2011		2010

Intrinsic value of options exercised	$	56	$	315	$	1,455
Cash received from options exercised, net of shares redeemed		147		438		1,884
Weighted average fair value of options granted		17		28		42

Loan balances of non-executive officer employees that were originated to fund stock option exercises were as follows:

Years Ended December 31, (in thousands)	2012		2011

Outstanding loans	$	466	$	893

Restricted Stock Awards

Restricted stock awards generally become fully vested at the end of five to six years of continued employment. Information related to restricted stock awards granted follows:

December 31, (in thousands except per share data)	2012

Shares granted		82
Weighted-average grant date fair value	$	19.85
Restricted stock award expense	$	50

The following table summarizes the activity for non-vested restricted stock awards for the year ended December 31 2012.

	Shares
Outstanding, beginning of year		-
Granted		82,000
Forfeited or expired		-
Earned and issued		-
Outstanding, end of year		82,000

The fair value of the restricted stock awards is based on the closing stock price on the date of grant with the associated expense amortized to compensation expense over the vesting period, generally five to six years

Unrecognized stock option and restricted stock award expense related to unvested options and awards (net of estimated forfeitures) are estimated as follows:

Year	Awards		Options		Total

2013	$	298	$	243	$	541
2014		298		113		411
2015		298		14		312
2016		298		7		305
2017		271		3		274
2018		114		-		114

Total	$	1,577	$	380	$	1,957

Director Deferred Compensation

In November 2004, the Company’s Board of Directors approved a Non-Qualified Deferred Compensation Plan (the “Plan”). The Plan governs the deferral of board and committee fees of non-employee members of the Board of Directors. Members of the Board of Directors may defer up to 100% of their board and committee fees for a specified period ranging from two to five years. The value of the deferred director compensation account is deemed “invested” in Company stock and is immediately vested. On a quarterly basis, the Company reserves shares of Republic’s stock within the Company’s stock option plan for ultimate distribution to Directors at the end of the deferral period. The Plan has not and will not materially impact the Company, as director compensation expense has been and will continue to be recorded when incurred.

The following table presents information on director deferred compensation shares reserved for the periods shown:

	2012					2011					2010

Years ended December 31,	Shares Deferred			Weighted Average Market Price at Date of Deferral		Shares Deferred			Weighted Average Market Price at Date of Deferral		Shares Deferred			Weighted Average Market Price at Date of Deferral

Balance, beginning of period		43,990		$	20.19		37,842		$	20.30		32,004		$	20.19
Awarded		9,871			22.02		8,658			19.77		7,298			21.05
Released		(3,447	)		18.93		(2,510	)		20.42		(1,460	)		21.73
Balance, end of period		50,414		$	20.19		43,990		$	20.19		37,842		$	20.30

Director deferred compensation has been expensed as follows:

Years Ended December 31, (in thousands)	2012		2011		2010

Director deferred compensation expense	$	227	$	171	$	151