Note 11. Stock-Based Incentive Plan

The Corporation adopted the shareholder approved 2013 Long-Term Incentive Plan to replace the 2003 Long-Term Incentive Plan which expired during April 2013. The 544,517 unissued common shares under the 2003 Long-Term Incentive Plan expired and are no longer available for future grant options or share awards. Under the 2013 Long-Term Incentive Plan, the Corporation may grant options and share awards to employees up to 2,000,000 shares of common stock. The plan provides for the issuance of options to purchase common shares at prices not less than 100 percent of the fair market value on the date of option grant and have a contractual term of ten years; and for restricted stock awards valued at not less than 100 percent of the fair market value at the date of award grant. For the majority of options issued, after two years, 33.3 percent of the optioned shares become exercisable in each of the following three years and remain exercisable for a period not exceeding ten years from the date of grant. For the majority of the restricted stock awards, the restriction lapses over a three-year period at 33.3 percent per year. There were 2,000,000 share awards available for future grants at December 31, 2013 under the plan. At December 31, 2013, there were 612,050 options to purchase common stock and 185,423 unvested restricted stock awards outstanding under the plan.

The following is a summary of the status of options under the Corporation’s long-term incentive plan:


(Dollars in thousands, except per share data)	Shares Under Option			Weighted Average Exercise Price Per Share		Weighted Average Remaining Contractual Life (Years)		Aggregate Intrinsic Value at December 31, 2013
Outstanding at December 31, 2012		584,349		$	20.85
Granted		114,500			16.87
Expired		(75,632	)		27.07
Forfeited		(11,167	)		17.06
Exercised		—			—

Outstanding at December 31, 2013		612,050			19.41		5.7	$	1,329

Exercisable at December 31, 2013		343,391			21.85		3.7		142

There were no stock options exercised during 2011 through 2013. The Corporation has a stock-for-stock-option exchange (or cashless exercise) program in place, whereby optionees can exchange the value of the spread of in-the-money vested options for Corporation stock having an equivalent value. This broker-assisted exchange allows the optionees to exercise their vested options on a net basis without having to pay the exercise price or related expenses in cash. However, it will result in the optionees acquiring fewer shares than the number of options exercised.

The Corporation’s estimate of the fair value of a stock option is based on expectations derived from historical experience and may not necessarily equate to its market value when fully vested. The life of the option is based on historical factors which include the contractual term, vesting period, exercise behavior and employee turnover. The risk-free rate for periods within the expected term of the option is based on the U.S. Treasury strip rate in effect at the time of grant. Expected volatility is based on the historical volatility of the Corporation’s stock over the expected life of the grant. The Corporation uses a straight-line accrual method to recognize stock-based compensation expense over the time-period it expects the options to vest.

The Corporation recognizes compensation expense for stock options over the requisite service period based on the grant-date fair value of those awards expected to ultimately vest. Forfeitures are estimated on the date of grant and revised if actual or expected forfeiture activity differs materially from original estimates. The following aggregated assumptions were used to estimate the fair value of options granted for the periods indicated:


	For the Years Ended December 31,
	2013			2012			2011
Expected option life in years		8.9			8.2			7.9
Risk free interest rate		1.99	%		1.63	%		3.04	%
Expected dividend yield		4.74	%		5.40	%		4.64	%
Expected volatility		49.30	%		50.74	%		49.11	%
Fair value of options	$	5.32		$	4.37		$	5.72

Following is a summary of nonvested restricted stock awards at December 31, 2013 including changes during the year:


(Dollars in thousands, except per share data)	Nonvested Share Awards			Weighted Average Grant Date Fair Value
Nonvested share awards at December 31, 2012		175,008		$	16.70
Granted		70,041			16.76
Vested		(30,093	)		17.84
Forfeited		(29,533	)		17.56

Nonvested share awards at December 31, 2013		185,423			16.40

The fair value of restricted stock is equivalent to the fair value on the date of grant and is amortized over the vesting period. Certain information regarding restricted stock is summarized below for the periods indicated:


(Dollars in thousands, except per share data)	For the Years Ended December 31,
	2013		2012		2011
Shares granted		70,041		71,157		58,736
Weighted average grant date fair value	$	16.76	$	15.29	$	17.34
Intrinsic value of awards vested	$	505	$	625	$	183

At December 31, 2013, there was $1.5 million in total unrecognized compensation expense related to nonvested share-based compensation arrangements, which is expected to be recognized over a weighted average period of 2.4 years.

The following table presents information related to the Corporation’s compensation expense related to stock incentive plans recognized for the periods indicated:


	For the Years Ended December 31,
(Dollars in thousands)	2013		2012		2011
Stock-based compensation expense:
Stock options	$	517	$	408	$	301
Restricted stock awards		461		859		587
Employee stock purchase plan		38		36		33

Total	$	1,016	$	1,303	$	921

Tax benefit on nonqualified stock option expense and restricted stock awards	$	162	$	296	$	203

There were no modifications or accelerations to options or restricted stock awards during 2011 through 2013.

The Corporation typically issues shares for stock options exercises and grants of restricted stock awards from its treasury stock.