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Stock Option Plan

12 Months Ended

Dec. 31, 2011

Note 22: Stock Option Plan

The Company established the 1997 Stock Option and Incentive Plan for employees and directors of the Company and its subsidiaries. Under the plan, stock options or other awards could be granted with respect to 1,600,000 (adjusted for stock splits) shares of common stock. Upon stockholders’ approval of the 2003 Stock Option and Incentive Plan, the 1997 Stock Option and Incentive Plan was frozen; therefore, no new stock options or other awards may be granted under this plan. At December 31, 2011, 34,200 options were outstanding under this plan.

The Company established the 2003 Stock Option and Incentive Plan for employees and directors of the Company and its subsidiaries. Under the plan, stock options or other awards could be granted with respect to 1,196,448 (adjusted for stock splits) shares of common stock. At December 31, 2011, 774,853 options were outstanding under the plan.

Stock options may be either incentive stock options or nonqualified stock options, and the option price must be at least equal to the fair value of the Company’s common stock on the date of grant. Options generally are granted for a 10-year term and generally become exercisable in four cumulative annual installments of 25% commencing two years from the date of grant. The Stock Option Committee may accelerate a participant’s right to purchase shares under the plan.

Stock awards may be granted to key officers and employees upon terms and conditions determined solely at the discretion of the Stock Option Committee.

The table below summarizes transactions under the Company’s stock option plans:

			Weighted
	Available to	Shares Under	Average Exercise
	Grant	Option	Price

Balance, January 1, 2009	586,188	700,397	$23.003
Granted	(72,425)	72,425	21.367
Exercised	—	(25,434)	14.066
Forfeited from terminated plan(s)	—	(6,455)	11.910
Forfeited from current plan(s)	10,747	(10,747)	25.397

Balance, December 31, 2009	524,510	730,186	23.215
Granted	(88,190)	88,190	22.105
Exercised	—	(47,597)	14.088
Forfeited from terminated plan(s)	—	(850)	7.785
Forfeited from current plan(s)	26,133	(26,133)	25.916

Balance, December 31, 2010	462,453	743,796	23.592
Granted	(120,100)	120,100	19.349
Exercised	—	(25,856)	12.053
Forfeited from terminated plan(s)	—	(4,000)	12.898
Forfeited from current plan(s)	24,987	(24,987)	23.349

Balance, December 31, 2011	367,340	809,053	$23.391

The Company’s stock option grants contain terms that provide for a graded vesting schedule whereby portions of the options vest in increments over the requisite service period. These options typically vest one-fourth at the end of years two, three, four and five from the grant date. As provided for under FASB ASC 718, the Company has elected to recognize compensation expense for options with graded vesting schedules on a straight-line basis over the requisite service period for the entire option grant. In addition, ASC 718 requires companies to recognize compensation expense based on the estimated number of stock options for which service is expected to be rendered. Because the historical forfeitures of its share-based awards have not been material, the Company has not adjusted for forfeitures in its share-based compensation expensed under ASC 718.

The fair value of each option award is estimated on the date of the grant using the Black-Scholes option pricing model with the following assumptions:

	December 31,	December 31,	December 31,
	2011	2010	2009

Expected dividends per share	$0.72	$0.72	$0.72
Risk-free interest rate	0.93%	1.52%	2.19%
Expected life of options	5 years	5 years	5 years
Expected volatility	27.99%	37.69%	69.16%
Weighted average fair value of
options granted during year	$3.15	$5.60	$9.90

Expected volatilities are based on the historical volatility of the Company’s stock, based on the monthly closing stock price. The expected term of options granted is based on actual historical exercise behavior of all employees and directors and approximates the graded vesting period of the options. Expected dividends are based on the annualized dividends declared at the time of the option grant. The risk-free interest rate is based on the five-year treasury rate on the grant date of the options.

The following table presents the activity related to options under all plans for the year ended December 31, 2011.

			Weighted
		Weighted	Average
		Average	Remaining
		Exercise	Contractual
	Options	Price	Term

Options outstanding, January 1, 2011	743,796	$23.592	5.59
Granted	120,100	19.349	—
Exercised	(25,856)	12.053	—
Forfeited	(28,987)	21.907	—
Options outstanding, December 31, 2011	809,053	23.391	5.43

Options exercisable, December 31, 2011	508,409	25.548	3.52

For the years ended December 31, 2011, 2010 and 2009, options granted were 120,100, 88,190 and 72,425, respectively. The total intrinsic value (amount by which the fair value of the underlying stock exceeds the exercise price of an option on exercise date) of options exercised during the years ended December 31, 2011, 2010 and 2009, was $145,000, $388,000 and $196,000, respectively. Cash received from the exercise of options for the years ended December 31, 2011, 2010 and 2009, was $311,000, $671,000 and $358,000, respectively. The actual tax benefit realized for the tax deductions from option exercises totaled $97,000, $309,000 and $183,000 for the years ended December 31, 2011, 2010 and 2009, respectively.

The following table presents the activity related to nonvested options under all plans for the year ended December 31, 2011.

		Weighted	Weighted
		Average	Average
		Exercise	Grant Date
	Options	Price	Fair Value

Nonvested options, January 1, 2011	266,560	$20.535	$6.029
Granted	120,100	19.349	3.150
Vested this period	(69,918)	22.056	5.974
Nonvested options forfeited	(16,098)	19.849	6.232

Nonvested options, December 31, 2011	300,644	19.744	4.940

At December 31, 2011, there was $1.3 million of total unrecognized compensation cost related to nonvested options granted under the Company’s plans. This compensation cost is expected to be recognized through 2016, with the majority of this expense recognized in 2012 and 2013.

The following table further summarizes information about stock options outstanding at December 31, 2011:

	Options Outstanding
		Weighted		Options Exercisable
		Average	Weighted		Weighted
		Remaining	Average		Average
Range of	Number	Contractual	Exercise	Number	Exercise
Exercise Prices	Outstanding	Life	Price	Exercisable	Price

$8.360 to $19.960	205,505	7.55 years	$16.298	57,539	$14.327
$20.120 to $25.000	281,440	5.34 years	$21.275	148,118	$20.743
$25.480 to $36.390	322,108	4.18 years	$29.765	302,752	$30.031

	809,053	5.43 years	$23.391	508,409	$25.548

- Definition

Disclosure of accounting policy for ESOP transactions, including the method of measuring compensation, the classification of dividends on ESOP shares, and the treatment of ESOP shares for EPS computations. If the employer has both old ESOP shares for which it does not adopt new guidance and new ESOP shares for which new guidance is required, these disclosures are required for both blocks of shares.

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