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 45,500 shares of restricted stock on May 2, 2012 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, 2017. Under the terms of the award, vesting may be accelerated on a partial basis after December 31, 2014 depending on financial results for the years 2012 through 2014. Vesting may be accelerated each year thereafter until December 31, 2016 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, 2017. All unearned restricted stock grants are forfeited if the employee leaves the Company prior to vesting.

Additionally, on May 2, 2012, 475 shares of service-based restricted stock were issued to an executive officer not included in the above group and 400 shares of restricted stock were awarded to each member of the board of directors totaling 4,000 shares. The shares will vest at 100% on April 30, 2013.

No stock option awards were made during the years ended December 31, 2012 or 2011.

For the years ended December 31, 2012, 2011, and 2010, the Company recorded $440,000, $471,000, and $158,000, respectively, in share-based compensation expense related to restricted stock and option grants. The total income tax benefit related to share-based compensation was $79,000, $111,000, and $41,000 in 2012, 2011, and 2010, respectively.

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

	2012						2011						2010
	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	64,518		$	14.96			16,878		$	16.24			7,752		$	23.82
Granted	49,975		16.86				55,563		15.06				15,023		14.58
Vested	(4,549	)	14.79				(7,923	)	18.38				(3,650	)	26.30
Forfeited	—		—				—		—				(2,247	)	14.99
Non-vested at end of the year	109,944		$	15.83	$	1,942,000	64,518		$	14.96	$	919,000	16,878		$	16.24	$	241,000

The weighted-average remaining contractual term for non-vested service award grants at December 31, 2012, 2011, and 2010 was 4.3 , 4.5, and 1.9 years, respectively. The weighted-average grant-date fair value of restricted stock service-based grants awarded during the years ended December 31, 2012, 2011, and 2010 was $16.86 , $15.06, and $14.58 respectively. As of December 31, 2012, 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, 2012, 2011, and 2010, the Company recorded $362,000, $217,000, and $131,000, 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.

	2012						2011					2010
	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			21,702	$	14.27			16,078		$	18.11
Granted	—		—				—	—				12,220		13.92
Vested	(8,383	)	14.59				—	—				—		—
Forfeited	(2,808	)	14.59				—	—				(6,596	)	23.00
Non-vested at end of the year	10,511		$	13.92	$	186,000	21,702	$	14.27	$	309,000	21,702		$	14.27	$	309,000

The weighted-average remaining contractual term for non-vested performance award grants at December 31, 2012 and 2011, was 0.2 and 0.6 years, respectively. No performance-based restricted stock was granted during the years ended December 31, 2012 and 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, 2012, there was $73,000 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 years ended December 31, 2012 and December 31, 2011, the Company recorded $64,000 and$206,000, respectively, in compensation expense related to performance-based restricted stock awards. For the year ended December 31, 2010, no expense was recorded due to the estimated forfeiture rate during that year.

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 $14,000, $49,000, and $27,000 respectively for the years ended December 31, 2012 , 2011, and 2010 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 2010 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 2012 or 2011. As of December 31, 2012, all outstanding option awards were vested and, accordingly, there was no unrecognized compensation cost related to unvested stock-based option awards.

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, 2012, 2011, and 2010, was 4.7 years, 2.3 years and 2.8 years, respectively.

Options outstanding at December 31 are summarized as follows:

	2012				2011				2010
	Shares		Weighted- Average Exercise Price		Shares		Weighted- Average Exercise Price		Shares		Weighted- Average Exercise Price
Outstanding at beginning of year	160,171		$	20.40	165,915		$	20.18	184,208		$	19.34
Granted	—		—		—		—		—		—
Exercised	—		—		—		—		(12,500	)	10.63
Forfeited	(78,000	)	23.64		(5,744	)	14.00		(5,793	)	14.00
Outstanding at end of year	82,171		$	17.32	160,171		$	20.40	165,915		$	20.18
Options exercisable at year end	82,171		$	17.32	130,086		$	21.88	117,729		$	22.71
Weighted average fair value of options granted during year (per option)			$	—			$	—			$	—

No outstanding stock options were exercised during the years ended December 31, 2012 and December 31, 2011. The total intrinsic value of options exercised during the year ended December 31, 2010 was $43,000. There was no aggregate intrinsic value of options outstanding at December 31, 2012 and 2011.

As of December 31, 2012, options outstanding and exercisable are summarized as follows:

Range of Exercise Prices		Options Outstanding	Remaining Contractual Life	Options Exercisable
			(years)
$	22.00	16,000	0.3	16,000
37.00		3,000	0.8	3,000
39.40		3,000	1.0	3,000
14.00		55,171	6.2	55,171
14.00		5,000	6.8	5,000
$14.00-$39.40		82,171	4.7	82,171