Share-Based Compensation Plan

The Company sponsors one share-based compensation plan, the 2006 Equity Compensation Plan, which provides for the granting of stock options, stock appreciation rights, stock awards, performance share awards, incentive awards, and stock units. The 2006 Equity Compensation Plan was approved by the Company’s shareholders at the Annual Meeting held on April 26, 2006, and has succeeded the Company’s 1997 Stock Incentive Plan. Under the plan, the Company may grant share-based compensation to its directors, officers, employees, and other persons the Company determines have contributed to the profits or growth of the Company. During 2013, the Company's Board of Directors and shareholders approved an amendment to this Plan to increase the number of shares reserved for issuance from 255,000 shares to 430,000 shares, an increase of 175,000 shares.

The Company granted 28,500 shares of restricted stock on May 1, 2013 to certain employees and executive officers. The restricted stock award is a hybrid performance and service-based award that contains performance-based acceleration provisions if certain financial performance targets are met during pre-defined monitoring periods. If the performance targets are not met during the monitoring periods, only 50% of the awarded shares will vest on December 31, 2018. Under the terms of the award, vesting may be accelerated on a partial basis after December 31, 2015 depending on financial results for the years 2013 through 2015. Vesting may be accelerated each year thereafter until December 31, 2017 based on financial results as compared to a selected peer group for the preceding three years. If the stock award is not vested through acceleration, 50% of any unvested shares will become vested on December 31, 2018. All unearned restricted stock grants are forfeited if the employee leaves the Company prior to vesting. Additionally, on May 1, 2013, 4,000 shares of restricted stock were awarded to members of the board of directors. The shares will vest at 100% on April 30, 2014.

For the years ended December 31, 2013, 2012, and 2011, the Company recorded $492,000, $440,000, and $471,000, respectively, in share-based compensation expense related to restricted stock and option grants. The total income tax benefit related to share-based compensation was $54,000, $79,000, and $111,000 in 2013, 2012, and 2011, respectively.

The following table summarizes restricted stock service awards awarded under the 2006 Equity Compensation Plan:



	December 31,
	2013						2012						2011
(Dollars in thousands)	Shares		Weighted-Average Grant Date Fair Value		Aggregate Intrinsic Value		Shares		Weighted-Average Grant Date Fair Value		Aggregate Intrinsic Value		Shares		Weighted-Average Grant Date Fair Value		Aggregate Intrinsic Value
Non-vested at the beginning of the year	109,944		$	15.83			64,518		$	14.96			16,878		$	16.24
Granted	32,500		17.96				49,975		16.86				55,563		15.06
Vested	(10,944	)	15.54				(4,549	)	14.79				(7,923	)	18.38
Forfeited	(12,250	)	16.33				—		—				—		—
Non-vested at end of the year	119,250		$	16.39	$	2,151	109,944		$	15.83	$	1,942	64,518		$	14.96	$	919

The weighted-average remaining contractual term for non-vested service award grants at December 31, 2013, 2012, and 2011 was 3.9 , 4.3, and 4.5 years, respectively. As of December 31, 2013, there was $1.4 million of total unrecognized compensation expense related to the non-vested service award grants under the 2006 Equity Compensation Plan.

For the years ended December 31, 2013, 2012, and 2011, the Company recorded $412,000, $362,000, and $217,000, respectively, in compensation expense for service-based restricted stock awards

The aggregate intrinsic value represents the amount by which the current market value of the underlying stock exceeds the exercise price. This amount changes based on changes in the market value of the Company’s common stock.

The following table summarizes restricted stock performance awards awarded under the 2006 Equity Compensation Plan:



	December 31,
	2013						2012						2011
(Dollars in thousands)	Shares		Weighted-Average Grant Date Fair Value		Aggregate Intrinsic Value		Shares		Weighted-Average Grant Date Fair Value		Aggregate Intrinsic Value		Shares	Weighted-Average Grant Date Fair Value		Aggregate Intrinsic Value
Non-vested at the beginning of the year	10,511		$	13.92			21,702		$	14.27			21,702	$	14.27
Granted	—		—				—		—				—	—
Vested	(10,511	)	13.92				(8,383	)	14.59				—	—
Forfeited	—		—				(2,808	)	14.59				—	—
Non-vested at end of the year	—		$	—	$	—	10,511		$	13.92	$	186	21,702	$	14.27	$	309

There were no performance-based restricted stock granted during the years ended December 31, 2013, 2012 and 2011. As of December 31, 2013, there was no unrecognized compensation expense related to the non-vested performance awards under the 2006 Equity Compensation Plan.

Performance-based restricted stock awards vest based on the target levels being reached over a three-year period. Compensation expense is recognized based on the grant-date fair value of the awards and the estimated forfeiture rate associated with achieving the target result level. For the years ended December 31, 2013, 2012 and 2011, the Company recorded $80,000, $64,000, and $206,000 respectively, in compensation expense related to performance-based restricted stock awards.

Stock options may be granted periodically to certain officers and employees under the Company’s share-based compensation plan at prices equal to the market value of the stock on the date the options are granted. Options granted vest over a three-year time period over which 25% vests on each of the first and second anniversaries of the grant and 50% on the third anniversary of the grant. As of December 31, 2013, all outstanding option awards were vested and, accordingly, there was no unrecognized compensation expense related to unvested stock-based option awards. The Company recorded $14,000 and $49,000 in compensation expense for the years ended December 31, 2012 and 2011, respectively, related to previously issued stock option awards. Shares issued in connection with stock option exercises may be issued from available treasury shares or from market purchases. There were no stock option awards granted during the years ended December 31, 2013, 2012 or 2011.

The following table summarizes options outstanding under the 2006 Equity Compensation Plan and remaining outstanding unexercised options under the 1997 Stock Incentive Plan at the end of the reportable periods.



	2013				2012				2011
	Shares		Weighted- Average Exercise Price		Shares		Weighted- Average Exercise Price		Shares		Weighted- Average Exercise Price
Outstanding at beginning of year	82,171		$	17.32	160,171		$	20.40	165,915		$	20.18
Granted	—		—		—		—		—		—
Exercised	(2,743	)	14.00		—		—		—		—
Forfeited	(20,915	)	23.42		(78,000	)	23.64		(5,744	)	14.00
Outstanding at end of year	58,513		$	15.30	82,171		$	17.32	160,171		$	20.40
Options exercisable at year end	58,513		$	15.30	82,171		$	17.32	130,086		$	21.88

The total intrinsic value of options exercised was $11,100 at December 31, 2013. There was $160,300 aggregate intrinsic value of options outstanding at December 31, 2013 and no aggregate intrinsic value of options outstanding at 2012 and 2011.

As of December 31, 2013, options outstanding and exercisable are summarized as follows:



Range of Exercise Prices	Options Outstanding	Weighted-Average Remaining Contractual Life (years)	Options Exercisable
39.40	3,000	0.05	3,000
14.00	50,513	5.20	50,513
14.00	5,000	5.84	5,000
$14.00-$39.40	58,513	4.99	58,513