15. STOCK-BASED COMPENSATION

Stock-based compensation is accounted for in accordance with FASB ASC 718, Stock Compensation. After shareholder approval in 2005, the 1997 Stock Option Plan (“1997 Plan”) was replaced by the 2005 Incentive Plan (“2005 Plan”). Upon stockholder approval in 2013, the 2005 Incentive Plan was amended and replaced by the 2013 Incentive Plan (“2013 Plan”). No future awards may be granted under the 2005 Plan, however, we still have options outstanding under the 1997 Plan and 2005 Plan for our officers, directors and employees of us and our subsidiaries (“Associates”). The 2013 Plan will terminate on the tenth anniversary of its effective date, after which no awards may be granted. Collectively, the 1997 Plan, 2005 Plan and 2013 Plan are referred to as Stock Incentive Plans. The number of shares reserved for issuance under the 2013 Plan is 698,845. At December 31, 2013, there were 548,845 shares available for future grants under the 2013 Plan.

With the exception of certain Performance Stock Awards, the Stock Incentive Plans provide for the granting of incentive stock options as defined in Section 422 of the Internal Revenue Code as well as non-incentive stock options (collectively, “Stock Options”). Additionally, the 2013 Plan provides for the granting of stock appreciation rights, performance awards, restricted stock and restricted stock unit awards, deferred stock units, dividend equivalents, other stock-based awards and cash awards. All Stock Options are to be granted at not less than the market price of our common stock on the date of the grant. With the exception of certain Non-Plan Stock Options (as defined below), all Stock Options granted during 2013 and 2012 vest in 25% per annum increments, start to become exercisable one year from the grant date and expire five years from the grant date. Generally, all awards become exercisable immediately in the event of a change in control, as defined within the Stock Incentive Plans. In addition, the Black-Scholes option-pricing model is used to determine the grant date fair value of Stock Options.

Stock Options

A summary of the status of our Stock Incentive Plans as of December 31, 2013, 2012 and 2011, respectively, and changes during those years are presented below:


	2013					2012					2011
	Shares			Weighted- Average Exercise Price		Shares			Weighted- Average Exercise Price		Shares			Weighted- Average Exercise Price
Stock Options:
Outstanding at beginning of year		335,730		$	42.14		416,886		$	43.52		566,323		$	42.84
Granted		522,357			49.09		88,307			39.66		57,723			44.15
Exercised		(118,438	)		39.39		(71,055	)		30.78		(85,379	)		18.94
Forfeited		(13,081	)		47.50		—			—		(12,666	)		40.85
Expired		(13,990	)		49.08		(98,408	)		53.99		(109,115	)		59.85

Outstanding at end of year		712,578			47.42		335,730			42.14		416,886			43.52

Exercisable at end of year		103,549		$	46.02		178,432		$	45.28		304,628		$	46.27

Weighted-average fair value of awards granted	$	13.94				$	12.50				$	14.06

At January 1, 2013 there were nonvested options with a $6.1 million intrinsic value. Stock Options that vested during 2013 had an intrinsic value of $2.4 million and options that were exercised had an intrinsic value of $2.7 million. In addition, there were vested options that expired with no intrinsic value. The exercisable options remaining at December 31, 2013, had an intrinsic value of $3.3 million and an average remaining contractual term of 1.4 years. At December 31, 2013 outstanding options had an intrinsic value of $21.4 million and an average remaining contractual term of 4.7 years.

The following table provides information about our unvested stock options outstanding at December 31, 2013, 2012 and 2011, respectively:


	2013							2012							2011
	Shares			Weighted- Average Exercise Price		Weighted- Average Grant Date Fair Value		Shares Shares			Weighted- Average Exercise Price		Weighted- Average Grant Date Fair Value		Shares			Weighted- Average Exercise Price		Weighted- Average Grant Date Fair Value
Stock Options:
Unvested at beginning of period		157,298		$	38.57	$	11.98		112,258		$	36.08	$	10.69		123,486		$	34.94	$	8.27
Granted		522,357			49.09		13.94		88,307			39.66		12.50		57,723			44.15		14.06
Vested		(57,545	)		35.41		10.65		(43,267	)		34.32		9.66		(56,285	)		40.77		9.13
Forfeited		(13,081	)		47.50		9.58		—							(12,666	)		40.85		9.44

Unvested at end of period		609,029		$	47.66	$	13.75		157,298		$	38.57	$	11.98		112,258		$	36.08	$	10.69

The total amount of unrecognized compensation cost related to nonvested stock options as of December 31, 2013 was $6.0 million. The weighted-average period over which the expense is expected to be recognized is 3.8 years. We issue new shares upon the exercise of options.

On April 25, 2013 stockholders approved a change in future compensation for Mark A. Turner, President and CEO. As a result, Mr. Turner was granted 250,000 non-statutory stock options (“Non-Plan Stock Options’) with a longer and slower vesting schedule than our standard options, 40% vesting after the second year and 20% vesting in each of the following three years. Additionally, these options were awarded at an exercise price of 20% over the December 2012 market value (date in which framework of the plan was decided on). Upon the grant, Mr. Turner is no longer eligible to receive grants under any of our other stock based award programs for a period of five years. The Black-Scholes option-pricing model was used to determine the grant date fair value of options. Significant assumptions used in the model included a weighted-average risk-free rate of return (zero coupon treasury yield) of 0.76% in 2013; an expected option life of five years; and an expected stock price volatility of 40.5% in 2013. For the purposes of this option-pricing model, a dividend yield of 1.01% was assumed.

Additionally, as a result of the stockholder approval, 150,000 incentive stock options were issued to certain executive officers of the Company under the 2013 Plan. These options have the same vesting schedule and exercise price as the Non-Plan Stock Options granted to Mr. Turner. The Black-Scholes option-pricing model was used to determine the grant date fair value of options. Significant assumptions used in the model included a weighted-average risk-free rate of return (zero coupon treasury yield) of 0.76% in 2013; an expected option life of five years; and an expected stock price volatility of 40.5% in 2013. For the purposes of this option-pricing model, a dividend yield of 1.01% was assumed.

During 2013, we granted 122,357 additional options with a five-year life and a four-year vesting period. The Black-Scholes option-pricing model was used to determine the grant date fair value of options. Significant assumptions used in the model included a weighted-average risk-free rate of return (zero coupon treasury yield) of 0.50% in 2013; an expected option life of three years and nine months; and an expected stock price volatility of 30.7% in 2013. For the purposes of this option-pricing model, a dividend yield of 1.01% was assumed.

During 2012, we granted 88,307 additional options with a five-year life and a four-year vesting period. The Black-Scholes option-pricing model was used to determine the grant date fair value of options. Significant assumptions used in the model included a weighted-average risk-free rate of return (zero coupon treasury yield) between 0.6% and 0.7% in 2012; an expected option life of three years and nine months; and an expected stock price volatility of 44.6% in 2012. For the purposes of this option-pricing model, a dividend yield of 1.2% was assumed.

The following table summarizes all outstanding Stock Options for option plans as of December 31, 2013, segmented by range of exercise prices:


	Outstanding						Exercisable
	Number		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life		Number		Weighted Average Exercise Price
Stock Options:
$20.70-$27.60		13,818	$	23.36		0.2		13,818	$	23.36
$27.61-$34.50		16,552		31.33		1.6		8,879		31.30
$34.51-$41.40		81,421		39.68		3.2		15,090		39.76
$41.41-$48.30		155,065		46.76		3.6		20,040		45.02
$48.31-$55.20		404,360		49.54		6.1		4,360		51.17
$55.21-$62.10		40,057		58.85		1.0		40,057		58.85
$62.11-$69.00		1,305		62.50		2.3		1,305		62.50

Total		712,578	$	47.42				103,549	$	46.02

Restricted Stock and Restricted Stock Units

During 2013, we issued 11,357 restricted stock units (“RSUs”) and restricted stock awards. These awards vest over a four year period. These stock awards were made to certain executive officers. The total amount of compensation cost to be recognized relating to non-vested restricted stock as of December 31, 2013, was $1.2 million. This compares to $992,000 at December 31, 2012 and $1.2 million at December 31, 2011. The weighted-average period over which the cost is expected to be recognized is 1.7 years.

Compensation costs related to these issuances are recognized over the lives of the restricted stock and RSUs. We amortize the expense related to the restricted stock grants into salaries, benefits and other compensation expense on an accrual basis over the requisite service period for the entire award. When we award restricted stock to individuals from whom we may not receive services in the future, such as those who are eligible for retirement, we recognize the expense of restricted stock grants when we make the award, instead of amortizing the expense over the vesting period of the award.

Performance Stock Awards

The Long-Term Performance-Based Restricted Stock Unit program (“Long-Term Program”) provided for awards up to an aggregate of 77,800 shares of our stock to the remaining 14 participants, only after the achievement of targeted levels of return on assets (“ROA”) in any year through 2013. Under the terms of the plan, if an annual ROA performance level of 1.00% was achieved, up to 39,000 shares were to be awarded. If an annual ROA performance level of 1.125% was achieved, up to 53,300 shares were to be awarded. If an annual ROA performance level of 1.25% or greater was achieved, up to 77,800 shares were to be awarded. Additionally, if a performance level was achieved and there were insufficient shares available for grant, we had the option of granting the available shares with the remainder paid in cash. During 2013, the company achieved the 1.00% performance level of return on assets. In accordance with the Long-Term Program, we issued 36,152 RSUs to the plan’s participants. The awarded stock will vest in 25% increments over four years. During 2013 we recognized $88,000 of compensation expense related to this program. Compensation expense related to the Long-Term Program was based on the closing stock price as of May 28, 2008.

The Board approved a plan in which Marvin N. Schoenhals, Chairman of the Board, was granted 22,250 shares of restricted stock effective January 3, 2011 with a five-year performance vesting schedule starting at the end of the second year. These shares are subject to vesting in whole or in part based on the role that Mr. Schoenhals plays in establishing new business over a two year period of time that achieves over a two year period a result of at least a 50% return on investment of the cost of the restricted stock. We recognized compensation expense of $275,000 related to this award in 2013.

The impact of stock-based compensation for the year ended December 31, 2013 was $3.2 million pre-tax ($2.5 million after tax) to salaries, benefits and other compensation. This compares to $2.3 million pre-tax ($1.7 million after tax) in 2012, and $1.6 million pre-tax ($1.2 million after tax) in 2011.