Note 8.

Share-Based Compensation Plan

The Company sponsored 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. The Company may grant awards up to 255,000 shares of common stock under the 2006 Equity Compensation Plan.

The Company granted 54,500 shares of restricted stock on May 2, 2011. The restricted stock award is a service-based award that vests at 100% on December 31, 2016 unless vesting is accelerated by meeting certain financial performance targets over the vesting period. Under the terms of the award, vesting may be accelerated on partial basis after December 31, 2013 depending on financial results for the years 2011 through 2013. Vesting may be accelerated each year thereafter until December 31, 2015 based on financial results as compared to a selected peer group for the preceding three years. If the service-based stock award is not vested through acceleration, the shares will become fully vested on December 31, 2016. All unearned restricted stock grants are forfeited if the employee leaves the Company prior to vesting.

Additionally, 1,063 shares of service-based restricted stock was issued to an executive officer on May 2, 2011. The shares will vest at 100% on May 1, 2012.

No stock option awards were granted during the year ended December 31, 2011.

For the years ended December 31, 2011, 2010, and 2009, the Company recorded $471,000, $158,000, and $94,000, respectively, in share-based compensation expense related to restricted stock and option grants. The total income tax benefit related to share-based compensation was $111,000, $41,000, and $2,000 in 2011, 2010, and 2009, respectively.

The following table summarizes restricted stock service awards awarded under the 2006 Equity Compensation Plan at December 31.

	2011						2010						2009
	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	16,878		$	16.24			7,752		$	23.82			10,602		$	24.04
Granted	55,563		15.06				15,023		14.58				-		-
Vested	(7,923	)	18.38				(3,650	)	26.30				(2,850	)	24.62
Forfeited	-		-				(2,247	)	14.99				-		-
Non-vested at end of the year	64,518		$	14.96	$	919,000	16,878		$	16.24	$	241,000	7,752		$	23.82	$	94,000

The weighted-average remaining contractual term for non-vested service award grants at December 31, 2011, 2010, and 2009 was 4.5 , 1.9, and 1.2 years, respectively. The weighted-average grant-date fair value of restricted stock service-based grants awarded during the years ended December 31, 2011 and December 31, 2010 was $15.06 and $14.58, respectively. No service-based restricted stock was granted during the year ended December 31, 2009. As of December 31, 2011, there was $802,000 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, 2011, 2010, and 2009, the Company recorded $217,000, $131,000, and $94,000, respectively, in compensation expense for service-based restricted stock awards

The following table summarizes restricted stock performance awards awarded under the 2006 Equity Compensation Plan at December 31.

	2011					2010						2009
	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	21,702	$	14.27			16,078		$	18.11			16,078	$	18.11
Granted	-	-				12,220		13.92				-	-
Vested	-	-				-		-				-	-
Forfeited	-	-				(6,596	)	23.00				-	-
Non-vested at end of the year	21,702	$	14.27	$	309,000	21,702		$	14.27	$	309,000	16,078	$	18.11	$	195,000

The weighted-average remaining contractual term for non-vested performance award grants at December 31, 2011 and 2010, was 0.6 and 1.6 years, respectively. No performance-based restricted stock was granted during the year ended December 31, 2011. The weighted-average grant-date fair value of performance-based restricted stock awarded during the year ended December 31, 2010 was $13.92. As of December 31, 2011, there was $129,000 of total 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 and the estimated forfeiture rate associated with achieving the target result level. For the year ended December 31, 2011, the Company recorded $206,000 in compensation expense related to performance-based restricted stock awards. For the years ended December 31, 2010 and December 31, 2009, no expense was recorded due to the estimated forfeiture rate during those years.

Stock options may be granted periodically to certain officers and employees under the Company's share-based compensation plan as determined by a committee. The Company recorded compensation expense of $49,000, $27,000, and $25,000 respectively for the years ended December 31, 2011 , 2010, and 2009 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.

Options are granted to certain employees 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 percent vests on each of the first and second anniversaries of the grant and 50 percent on the third anniversary of the grant. The effects are computed using option pricing models, using the following weighted-average assumptions for options granted during 2009 as of the grant date: 1) a risk-free interest rate of 2.26 percent 2) a dividend yield of 2.51 percent, 3) volatility of 26.71 percent and 4) an expected option life of 9.72 years. No options were granted during 2011 or 2010. As of December 31, 2011, there was $14,000 in unrecognized compensation cost related to unvested stock-based option awards granted.

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. The weighted-average remaining contractual term for options outstanding and exercisable at December 31, 2011, 2010, and 2009, was 2.3 years, 2.8 years and 2.6 years, respectively.

Options outstanding at December 31 are summarized as follows:

	2011				2010				2009
	Shares		Weighted- Average Exercise Price		Shares		Weighted- Average Exercise Price		Shares		Weighted- Average Exercise Price
Outstanding at beginning of year	165,915		$	20.18	184,208		$	19.34	158,380		$	19.80
Granted	-		-		-		-		77,263		14.00
Exercised	-		-		(12,500	)	10.63		(8,100	)	12.06
Forfeited	(5,744	)	14.00		(5,793	)	14.00		(43,335	)	12.87
Outstanding at end of year	160,171		$	20.40	165,915		$	20.18	184,208		$	19.34
Options exercisable at year end	130,086		$	21.88	117,729		$	22.71	112,500		$	22.74
Weighted average fair value of options granted during year (per option)			$	-			$	-			$	1.84

No outstanding stock options were exercised during the year ended December 31, 2011. The total intrinsic value of options exercised during the years ended December 31, 2010, and 2009 was $43,000, and $6,000, respectively. There was no aggregate intrinsic value of options outstanding at December 31, 2011.

As of December 31, 2011, options outstanding and exercisable are summarized as follows:

Range of Exercise Prices		Options Outstanding	Remaining Contractual Life	Options Exercisable
			(years)
$	22.75	55,000	0.3	55,000
22.00		34,000	1.3	34,000
37.00		3,000	1.8	3,000
39.40		8,000	2.0	8,000
14.00		55,171	7.2	27,586
14.00		5,000	7.8	2,500
$14.00-$39.40		160,171	2.3	130,086