Earnings Per Common Share And Share Awards

6 Months Ended

Jun. 30, 2011

Earnings Per Common Share And Share Awards

Earnings Per Common Share And Share Awards

Note 3 - Earnings Per Common Share and Share Awards

Basic earnings per common share are computed by dividing net income by the weighted-average number of common shares outstanding during the reporting period.  Diluted earnings per common share is computed by dividing net income by the combination of dilutive potential common stock, comprised of shares issuable under the Company's share-based compensation plans and the weighted-average number of common shares outstanding during the reporting period.  Dilutive common share equivalents include the dilutive effect of in-the-money share-based awards, which are calculated based on the average share price for each period using the treasury stock method.  Under the treasury stock method, the exercise price of a share-based award, the amount of compensation cost, if any, for future service that the Company has not yet recognized, and the amount of estimated tax benefits that would be recorded in additional paid-in capital, if any, when the share-based awards are exercised they are assumed to be used to repurchase shares in the current period.  The incremental dilutive potential common shares, calculated using the treasury stock method, were 20,952 and 7,546 for the three months ended June 30, 2011, and 2010, respectively, and 17,075 and 7,840 for the six months ended June 30, 2011, and 2010, respectively.

The following table sets forth the computation of basic and diluted earnings per share for the three and six month periods ended June 30:

	Three months ended June 30,				Six months ended June 30,
	2011		2010		2011		2010
Net income	$	1,594,805	$	2,537,560	$	2,614,012	$	2,554,975
Weighted average common shares outstanding – Basic		2,134,164		2,285,653		2,184,323		2,285,392
Incremental shares outstanding assuming
the exercise of dilutive stock options
and SARs (share settled)		20,952		7,546		17,075		7,840
Weighted average common shares outstanding - Diluted		2,155,116		2,293,199		2,201,398		2,293,232
Basic earnings per common share	$	0.75	$	1.11	$	1.20	$	1.12
Diluted earnings per common share	$	0.74	$	1.11	$	1.19	$	1.11

There were 9,500 and 13,500 shares excluded from the computation of diluted earnings per share for the three months ended June 30, 2011 and 2010, respectively, because these shares were anti-dilutive. There were 11,500 and 10,500 shares excluded from the computation of diluted earnings per share for the six months ended June 30, 2011 and 2010, respectively, because these shares were anti-dilutive.

The Company has adopted employee stock award plans (the "Plans") under which restricted stock, and options or stock appreciation rights ("SARs") to acquire shares (not to exceed 500,000 shares) of the Company's stock may be granted to key employees or directors of the Company at a price not less than the market value on the date of grant.  SARs and options (which have predominantly been incentive stock options) awarded under the Plans thus far are exercisable and vest immediately or within one year or at 10% to 20% per year beginning on the date of grant and generally expire in five to ten years.  All SARs issued to date have been share settled only.  There have not been any SARs exercised in 2011 or 2010.

A summary of share-based award transactions for all share-based award plans follows:

				Weighted		Average
				Average		Remaining		Aggregate
	Number			Exercise		Contractual		Intrinsic
	Of Shares			Price		Term (years)		Value
Outstanding as of January 1, 2010		117,245		$	27.54		5.10	$	541,543
SARs granted		3,000			33.31
Options exercised		(9,445	)		14.88
Options/SARs cancelled/forfeited/expired		-			-
Outstanding as of December 31, 2010		110,800		$	28.77		4.51	$	353,955
SARs granted		3,000			41.50
Options exercised		(7,550	)		20.20
Options/SARs cancelled/forfeited/expired		(4,500	)		28.61
Outstanding as of June 30, 2011		101,750		$	29.79		4.41	$	1,075,771
Exercisable as of June 30, 2011		89,477		$	29.72		4.36	$	955,189
Unvested as of June 30, 2011		12,273		$	30.34		4.77	$	120,582

During both the second quarters of 2011 and 2010, the Company issued 3,000 share-settled SARs to the directors of the Company.   SARs give the holder the right to receive stock equal to the appreciation in the value of shares of stock from the grant date for a specified period of time, and as a result, are accounted for as equity instruments.  As such, these were valued using the Black-Scholes option valuation model.  The fair value of each award is estimated on the date of grant using the Black-Scholes option valuation model with the weighted-average assumptions noted in the table shown below. Expected volatilities are based on both the implied and historical volatility of the Company's stock. The Company uses historical data to project SAR exercise and employee termination within the valuation model. The expected term of awards represents the period of time that SARs granted are expected to be outstanding. The interest rate for periods during the expected life of the award is based on the U.S. Treasury yield curve in effect at the time of the grant.  The weighted-average fair value for the SARs issued was $15.55 and was estimated using the weighted-average assumptions shown in the table below.

	2011	2010
Expected Life in Years	5.0	5.0
Volatility	43.6%	42.4%
Interest Rate	1.9%	2.1%
Yield Rate	0.8%	0.8%

There was approximately $106,000 and $110,000 of compensation expense relating to SARs or options vesting on or before June 30, 2011 and 2010, respectively, included in salaries, employee benefits and payroll taxes in the consolidated statements of income.  As of June 30, 2011, there was approximately $150,000 of total unrecognized compensation cost related to unvested share-based compensation arrangements granted under the Company's stock award plans. That cost is expected to be recognized over a weighted-average period of approximately 6 months.

There have been no stock options or SARs granted where the exercise price was less than the market price on the date of grant.