Stock-Based Compensation Plans

Stock-Based Compensation

On April 29, 2003 and May 1, 2012, the shareholders of the Company approved the 2003 Plan and 2012 Plan, respectively. The maximum number of shares of stock reserved and available for issuance under each the 2003 Plan and 2012 Plan is 800,000 shares. Awards may be granted in the form of incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units, unrestricted stock, performance shares and dividend equivalent rights, or any combination of the preceding, and the exercise price shall not be less than 100% of the fair market value on the date of grant in the case of incentive stock options, or 85% of the fair market value on the date of grant in the case of non-qualified stock options. No stock options are exercisable more than 10 years after the date the stock option is granted. The exercise price of all options equaled the market price of the Company's stock on the date of grant.

Stock Option Awards

Stock options granted under the 2003 Plan and the 2012 Plan have been incentive stock options. Stock options granted vest pro rata over a five year period and have a contractual life of 10 years.

On the date of each grant, the fair value of each award is derived using the Black-Scholes option pricing model based on assumptions made by the Company as follows:


•	Dividend yield is based on the dividend rate of the Company’s stock at the date of grant.


•	Risk-free interest rate is based on the U.S. Treasury bond rate with a term equaling the expected life of the granted options.


•	Expected volatility is based on the historical volatility of the Company’s stock price calculated over the expected life of the option.


•	Expected life represents the period of time that granted options are expected to be outstanding based on historical trends.

The following table presents the option pricing assumptions and the estimated fair value of the options using these assumptions for grants made for the years ended:



	December 31,
	2014			2013			2012
Weighted-average dividend yield	2.90		%	2.40		%	2.20		%
Weighted-average risk-free interest rate	1.65		%	1.60		%	0.79		%
Weighted-average expected volatility	35.39		%	52.32		%	53.31		%
Weighted-average expected life in years	5.30			5.30			5.30
Weighted-average fair value of options granted	$	8.92		$	15.97		$	13.00

Compensation expense is recognized on a straight-line basis over the option vesting period and totaled $81,000, $134,000 and $99,000 for the years ended December 31, 2014, 2013 and 2012, respectively. The related income tax benefit from the compensation expense on stock options for the years ended December 31, 2014, 2013 and 2012 was $28,000, $47,000, and $35,000, respectively. Unrecognized compensation expense for nonvested stock options, which reflects an estimated forfeiture rate of 0% for executives and directors and 13% for all other officers, over the vesting period, totaled $103,000 at December 31, 2014. The forfeiture rate is used to estimate granted options that will be forfeited by executives, directors, and/or employees prior to vesting. The forfeiture rate is determined based on the Company's historical experience. Unrecognized compensation expense on stock options is expected to be recognized over the remaining weighted-average vesting period of 2.8 years. The total intrinsic value of options exercised during the years ended December 31, 2014, 2013, and 2012 was $134,000, $153,000, and $146,000, respectively.

Stock option activity for the year ended December 31, 2014 is as follows:



	Number of Shares		Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Term	Aggregate Intrinsic Value
Options outstanding at January 1, 2014	111,950		$	33.36
Granted	4,500		35.22
Exercised	(19,000	)	32.58
Forfeited and expired	(3,200	)	38.32
Options outstanding at December 31, 2014	94,250		$	33.44	4.5	$	664
Options exercisable at December 31, 2014	73,150		$	33.21	3.8	$	545

A summary of the status of the Company’s nonvested stock options as of December 31, 2014 and changes during the year then ended is presented below:



	Awards		Weighted-Average Grant Date Fair Value
Nonvested at January 1, 2014	34,950		$	11.23
Granted	4,500		8.92
Vested	(17,000	)	9.88
Forfeited	(1,350	)	12.05
Nonvested at December 31, 2014	21,100		$	11.77

Restricted Stock Units, Restricted Stock Awards and MSPP

The Company issues restricted stock units to certain Company directors who make a valid election to defer under the Independent Directors' Equity Compensation Program, a component of the 2012 Plan. These units are deferred and have no voting or dividend rights until termination or retirement, at which time shares will be issued based on the grant date fair value of the awards issued. The vesting period for these awards is determined when granted.

The Company issues restricted stock awards to certain executives, directors, and employees. Restricted stock awards issued to executives and employees vest pro-rata over three years, with requisite service conditions and no performance-based conditions to such vesting. The vesting period for restricted stock awards issued to directors under the Independent Directors' Equity Compensation Program is determined when granted. Restricted stock awards issued to executives, directors, and employees participate in dividends and recipients are entitled to vote these restricted shares during the vesting period.

The Company provides a MSPP to provide an opportunity for certain executives and employees to receive restricted shares of the Company’s common stock in lieu of their annual incentive bonus. Restricted shares issued under the MSPP are granted at a discount of one-third of the fair market value of the stock on the date of grant and cliff vest two years after the grant date. Restricted stock issued under the MSPP to executives and employees participate in dividends and are entitled to vote these restricted shares during the vesting period.

Compensation expense recognized in connection with the restricted stock units, restricted stock awards, and MSPP is presented in the following table:



	For The Years Ended December 31,
	2014		2013		2012
Restricted stock units	$	40	$	—	$	—
Restricted stock awards	214		149		163
MSPP grants	67		73		65
Total compensation expense	$	321	$	222	$	228
Related income tax benefit	$	112	$	78	$	80
Fair value of grants vested	$	332	$	229	$	121

The following table presents a summary of the activity related to restricted stock units, restricted stock awards and the MSPP for the period indicated:



	Restricted Stock Units				Restricted Stock				MSPP
	Number of Units		Weighted-Average Grant Date Fair Value		Number of Shares		Weighted-Average Grant Date Fair Value		Number of Shares		Weighted-Average Grant Date Fair Value
Nonvested at January 1, 2014	—		$	—	10,480		$	34.53	14,220		$	11.14
Granted	1,055		37.50		7,176		39.06		5,055		12.35
Vested	(1,055	)	37.50		(6,183	)	35.47		(6,923	)	10.55
Forfeited	—		—		(516	)	34.57		(247	)	11.43
Nonvested at December 31, 2014	—		$	—	10,957		$	36.96	12,105		$	11.97

At December 31, 2014, unrecognized compensation cost related to nonvested restricted stock awards and MSPP was $207,000, which is expected to be recognized over a weighted-average period of 1.7 years.

LTIP

The LTIP is intended to attract and retain executives who will contribute to the Company’s future success. The long-term performance period is a period of three consecutive years beginning on January 1 of the first year and ending on December 31 of the third year. Awards are based upon the attainment of certain performance targets on specific performance measures selected by the Compensation Committee and approved by the board of directors. The performance-based share units granted will vest only if certain revenue and expense goals or service conditions, as defined under the LTIP, are achieved. Failure to achieve the goals and service conditions will result in all or a portion of the shares being forfeited.

Compensation expense recognized in connection with the LTIP is presented in the following table:



	For The Years Ended December 31,
	2014		2013		2012
Compensation expense	$	151	$	200	$	174
Related income tax benefit	$	53	$	70	$	61
Fair value of grants vested	$	—	$	497	$	609

The following table presents a summary of the activity related to LTIP for the period indicated:



	Number of Shares		Weighted-Average Grant Date Fair Value
Nonvested at January 1, 2014	44,792		$	35.78
Granted	20,613		41.18
Vested	—		—
Forfeited	(22,627	)	34.77
Nonvested at December 31, 2014	42,778		$	38.92

Based on current performance levels, unrecognized stock compensation expense for the performance share awards was $338,000 with a weighted-average remaining amortization period of 1.8 years at December 31, 2014.

DCRP

The DCRP is an unfunded deferred compensation plan for the benefit of certain Company executives. The Company’s Compensation Committee determines eligibility in the DCRP and annually, participants will receive a credit to an account administered by the Company of 10% of each participant’s annual base salary and bonus for the prior performance period. Annual credits to a participant’s account will be denominated in deferred stock awards (the right to receive a share of common stock of the Company upon the satisfaction of certain restrictions) based on the fair market value of the common stock of the Company on the date of grant. Vesting occurs ratably from the date of participation until the participant reaches the age of 65, at which time the participant is 100% vested. Upon retirement or termination of employment, the participant will receive shares of common stock equal to the Deferred Stock Awards in the account multiplied by the vested percentage, reduced by the amount to be withheld for income taxes. The Company granted 2,020, 2,304, and 2,322 of deferred stock awards during 2014, 2013 and 2012, respectively under the DCRP. Compensation expense totaled $46,000, $40,000, and $37,000 for the years ended December 31, 2014, 2013, and 2012, respectively. Unrecognized stock compensation expense for the deferred stock awards was $191,000 with a weighted-average remaining amortization period of 12.1 years at December 31, 2014.