Stock-Based Compensation

6 Months Ended

Jun. 30, 2011

Stock-Based Compensation

Stock-Based Compensation

5. Stock-Based Compensation

Under the Company's equity incentive plans, directors and eligible employees may be granted incentive or non-statutory stock options and/or restricted stock units, or awarded non-vested stock. As of June 30, 2011, the only options granted by the Company were non-statutory stock options to selected Bank officers and non-employee directors at exercise prices equal to the fair market value of a share of the Company's common stock on the date of grant. Such options have a maximum ten-year term and vest in 20% annual increments (subject to early termination in certain events) except certain options granted to the Chief Executive Officer of the Company in 2005 and 2008. If such options expire or terminate without having been exercised, any shares not purchased will again be available for future grants or awards. There were no options granted during 2010 or during the first six months of 2011.

Option compensation expense totaled $196,000 for the three months ended June 30, 2011, and $696,000 for the three months ended June 30, 2010. For the six months ended June 30, option compensation expense totaled $562,000 for 2011 and $1.8 million for 2010. Stock-based compensation is recognized ratably over the requisite service period for all awards. Unrecognized stock-based compensation expense related to stock options totaled $1.3 million at June 30, 2011, and is expected to be recognized over the next 1.7 years.

Stock options covering 86,860 shares were exercised during the first quarter of 2011 compared to none in the second quarter of 2011 and none in the year 2010. Cash received totaled $1.3 million and the aggregate intrinsic value totaled $172,000 from the exercise of stock options during the six months ended June 30, 2011. Fair value of stock options vested was $35,000 during the second quarter of 2011 and during the second quarter of 2010. The table below summarizes stock option activity for the periods indicated:

	Shares			Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Life (in years)		Aggregate Intrinsic Value  (in thousands)
Balance, December 31, 2010		4,947,348			27.93		3.7	$	334
Exercised		(86,860	)		15.05
Forfeited		(481,588	)		21.82
Balance, March 31, 2011		4,378,900		$	28.86		3.9	$	178
Forfeited		(8,992	)		32.30
Balance, June 30, 2011		4,369,908		$	28.85		3.6	$	69
Exercisable, June 30, 2011		4,145,214		$	29.15		3.5	$	69

At June 30, 2011, 2,266,436 shares were available under the Company's 2005 Incentive Plan for future grants.

In addition to stock options, the Company also grants restricted stock units to eligible employees. On February 21, 2008, restricted stock units for 82,291 shares were granted to eligible employees. Upon vesting of restricted stock units, the Company issued 15,006 shares of common stock at the closing price of $9.64 per share on February 21, 2010, and 12,633 shares of common stock at the closing price of $18.79 per share on February 21, 2011. Restricted stock units granted in 2008 have a maximum term of five years and vest in approximately 20% annual increments subject to continued employment with the Company.

In March 2011, the Company again granted restricted stock units for 65,243 shares to eligible employees. The closing price of the Company's common stock on the date of the grant was $16.14 for the 15,069 restricted stock units granted on March 15, 2011 and $16.15 for the 50,174 restricted stock units granted on March 23, 2011. These restricted stock units granted in March 2011 are scheduled to vest in March 2013.

The following table presents information relating to the restricted stock units as of June 30, 2011:

	Units
Balance at December 31, 2010		38,960
Granted		65,243
Forfeited		(1,946	)
Vested		(12,633	)
Balance at June 30, 2011		89,624

The compensation expense recorded related to the restricted stock units above was $213,000 for the three months ended June 30, 2011, and $82,000 for the three months ended June 30, 2010. For the six months ended June 30, compensation expense recorded was $309,000 in 2011 and $163,000 in 2010. Unrecognized stock-based compensation expense related to restricted stock units was $1.5 million at June 30, 2011, and is expected to be recognized over the next 1.7 years.

The following table summarizes the tax short-fall from share-based payment arrangements:

	For the three months ended June 30,						For the six months ended June 30,
(Dollars in thousands)	2011			2010			2011			2010
Short-fall of tax deductions in excess of grant-date fair value	$	(37	)	$	(12	)	$	(271	)	$	(99	)
Benefit of tax deductions on grant-date fair value		37			12			343			99
Total benefit of tax deductions	$	—		$	—		$	72		$	—