15. Stock-Based Compensation Plans

Stock-Based Compensation

On April 29, 2003, the shareholders of the Company approved the 2003 Stock Option and Incentive Plan (the "2003 Plan"). The maximum number of shares of stock reserved and available for issuance under the 2003 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, deferred stock, 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. Prior to April 29, 2003, the Company had various stock option plans with options vesting immediately upon grant and expiring ten years from the date of the option grant. The exercise price of all options equaled the market price of the Company's stock on the date of grant.

On May 1, 2012, the shareholders of the Company approved the 2012 Equity and Incentive Plan (the "2012 Plan"). The maximum number of shares of stock reserved and available for issuance under the 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, deferred stock, 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 ten years after the date the stock option is granted. The options vested over a five year period, and expire ten years from the date the option was granted. The exercise price of all options equaled the market price of our 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. Options granted vest based on five years of continuous service and have ten year contractual terms.

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

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

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

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Expected volatility is based on the historical volatility of the Company's stock price.

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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:

	2012			2011			2010
Dividend yield		2.20	%		3.04	%		3.10	%
Weighted average risk-free interest rate		0.79	%		1.95	%		2.36	%
Weighted average expected volatility		53.31	%		51.90	%		50.50	%
Weighted average expected life in years		5.30			5.12			5.12
Weighted average fair value of options granted	$	13.00		$	12.30		$	11.72

Compensation expense is recognized on a straight-line basis over the option vesting period and totaled $99,000, $204,000 and $182,000 for the years ended December 31, 2012, 2011 and 2010, respectively. Unrecognized compensation cost for nonvested stock options, which reflects an estimated annualized forfeiture rate of 5% per year over the vesting period, totaled $360,000 at December 31, 2012, and 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, 2012, 2011, and 2010 was $146,000, $16,000, and $56,000, respectively.

Stock option activity for 2012 is as follows:

	Number of Shares			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term		Aggregate Intrinsic Value ($000)
Options outstanding at January 1, 2012		157,000		$	32.36			$
Granted		9,500			34.99
Exercised		(18,450	)		27.97
Forfeited and expired		(8,650	)		34.80
Options outstanding at December 31, 2012		139,400		$	32.97		5.8	$	369
Options exercisable at December 31, 2012		79,900		$	34.47		4.6	$	178

A summary of the status of the Company's nonvested stock options as of December 31, 2012 and changes during the year then ended is presented below:

	Awards			Weighted- Average Grant Date Fair Value
Nonvested at January 1, 2012		77,350		$	9.20
Granted		9,500			13.00
Vested		(23,100	)		9.70
Forfeited		(4,250	)		11.79
Nonvested at December 31, 2012		59,500		$	9.67

Restricted Stock Awards and Management Stock Purchase Plan

The Company issues restricted stock awards to certain key employees. Employees generally become fully vested in these shares after a three-year period, with requisite service conditions and no performance-based conditions to such vesting. The Company provides a Management Stock Purchase Plan (the "MSPP") to provide an opportunity for management employees to receive restricted shares of the Company's common stock in lieu of their annual incentive bonus. Restricted shares 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 fully vest two years after the grant date. During the vesting period, dividends are accrued on the restricted stock and the recipients are entitled to vote these restricted shares.

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

	Year Ended December 31,
	2012		2011		2010
Restricted stock awards	$	163	$	92	$	72
Management stock purchase plan grants		65		37		19
Total compensation expense	$	228	$	129	$	91
Related income tax benefit	$	80	$	45	$	32
Fair value of grants vested	$	121	$	106	$	134

The following table presents a summary of the activity related to restricted stock awards and stock purchase grants for the period indicated:

	Restricted Stock					Stock Purchase (MSPP)
	Number of Shares			Weighted Average Grant Date Fair Value		Number of Shares			Weighted Average Grant Date Fair Value
Nonvested at January 1, 2012		6,496		$	31.92		6,782		$	10.96
Granted		7,050			35.76		7,195			10.44
Vested		(3,329	)		31.05		(1,649	)		10.72
Forfeited and expired		(200	)		35.76		(276	)		10.67
Nonvested at December 31, 2012		10,017		$	34.84		12,052		$	10.69

At December 31, 2012, unrecognized compensation cost related to nonvested restricted stock awards and stock purchase grants was $219,000 which is expected to be recognized over a weighted average period of 1 year.

Long-Term Performance Share Plan

The Long-term Performance Share Plan ("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:

	Year Ended December 31,
	2012		2011		2010
Long-Term Performance Share Plan compensation expense	$	174	$	672	$	526
Related income tax benefit	$	61	$	235	$	184
Fair value of grants vested	$	609	$	570	$	327

The following table presents a summary of the activity related to Long-Term Performance Share Plan for the period indicated:

	Long-Term Performance Share Plan
	Number of Shares			Weighted Average Grant Date Fair Value
Nonvested at January 1, 2012		63,553		$	32.05
Granted		22,627			34.77
Vested		(22,999	)		26.52
Forfeited		(1,558	)		26.52
Nonvested at December 31, 2012		61,623		$	35.25

Based on current performance levels, unrecognized stock compensation expense for the performance share awards was $314,000 with a weighted-average remaining amortization period of 0.92 years at December 31, 2012.

Defined Contribution Retirement Plan

The Defined Contribution Retirement Plan (the "DCRP") is an unfunded deferred compensation plan for the benefit of certain senior management employees of the Company. 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 2,322 and 2,135 of Deferred Stock Awards during 2012 and 2011, respectively under the DCRP. Compensation expense totaled $37,000, $20,000, and $10,000 for the years ended December 31, 2012, 2011, 2010, respectively. Unrecognized stock compensation expense for the Deferred Stock Awards was $176,000 with a weighted-average remaining amortization period of 14 years at December 31, 2012.