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Stock-Based Compensation
 9 Months Ended
Sep. 30, 2012
Stock-Based Compensation [Abstract]  
Stock-Based Compensation

Note 3. Stock-Based Compensation

The Corporation maintains two stock-based compensation plans from which new grants could be issued. The Corporation's stock based compensation plans permit Parent Corporation common stock to be issued to key employees and directors of the Corporation and its subsidiaries. The options granted under the plans are intended to be either incentive stock options or non-qualified options. Under the 2009 Equity Incentive Plan, a total of 394,417 shares are available for grant and issuance as of September 30, 2012. Under the 2003 Non-Employee Director Stock Option Plan, a total of 403,219 shares remain available for grant and issuance under the plan as of September 30, 2012. Such shares may be treasury shares, newly issued shares or a combination thereof.

 

Options have been granted to purchase common stock principally at the fair market value of the stock at the date of grant. Options are exercisable over a three year vesting period starting one year after the date of grant and generally expire ten years from the date of grant.

 

Stock-based compensation expense for share-based payment awards is based on the grant date fair value estimated in accordance with the provisions of FASB ASC 718-10-10 "Stock Based Compensation". The Corporation recognizes these compensation costs net of a forfeiture rate and recognizes the compensation costs for only those shares expected to vest on a straight-line basis over the requisite service period of the award, which is generally the option vesting term of 3 years. The Corporation estimated the forfeiture rate based on its historical experience during the preceding seven fiscal years.

 

For the nine months ended September 30, 2012, the Corporation's income before income taxes and net income were reduced by $27,000 and $16,000, respectively, as a result of the compensation expense related to stock options. For the nine months ended September 30, 2011, the Corporation's income before income taxes and net income were reduced by $27,000 and $16,000, respectively, as a result of the compensation expense related to stock options.

 

Under the principal option plans, the Corporation may also grant stock awards to certain employees. Stock awards are independent of option grants and are generally subject to forfeiture if employment terminates prior to the release of any applicable restrictions. Unless fully vested at the time of grant, such awards generally vest within 30 days to five years from the date of grant. During that period, ownership of the shares cannot be transferred. Restricted stock and stock awards that are fully vested at the time of grant have the same cash dividend and voting rights as other common stock and are considered to be currently issued and outstanding. The Corporation expenses the cost of stock awards, which is determined to be the fair market value of the shares at the date of grant, ratably over the period during which any restrictions lapse. There were no restricted stock awards outstanding at September 30, 2012 and September 30, 2011.

 

There were 27,784 and 30,564 shares of common stock underlying options that were granted during the nine months ended September 30, 2012 and 2011, respectively. The fair value of share-based payment awards was estimated using the Black-Scholes option pricing model with the following assumptions and weighted average fair values at the time the grants were awarded:

 

 

 

Nine Months Ended

September 30,

 

 

 

2012

 

 

2011

 

Weighted average fair value of grants

 

$

2.03

 

 

$

1.89

 

Risk-free interest rate

 

 

2.03

%

 

 

2.19

%

Dividend yield

 

 

1.24

%

 

 

1.32

%

Expected volatility

 

 

22.04

%

 

 

22.25

%

Expected life in months

 

 

68

 

 

 

65

 

       Activity under the principal option plans as of September 30, 2012 and changes during the nine months ended September 30, 2012 were as follows:

 

 

 

Shares

 

 

Weighted-

Average

Exercise

Price

 

 

Weighted-

Average

Remaining

Contractual

Term

(Years)

 

 

Aggregate

Intrinsic

Value

 

Outstanding at December 31, 2011

 

 

171,378

 

 

$

10.01

 

 

 

 

 

 

 

Granted

 

 

27,784

 

 

 

9.64

 

 

 

 

 

 

 

Exercised

 

 

14,761

 

 

 

8.89

 

 

 

 

 

 

 

Outstanding at September 30, 2012

 

 

184,401

 

 

 

10.04

 

 

 

6.22

 

 

$

392,575

 

Exercisable at September 30, 2012

 

 

115,813

 

 

$

10.61

 

 

 

4.91

 

 

$

197,764

 

 

The aggregate intrinsic value of options above represents the total pre-tax intrinsic value (the difference between the Corporation's closing stock price on the last trading day of the third quarter of 2012 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on September 30, 2012. This amount changes based on the fair value of the Corporation's stock.

 

As of September 30, 2012, there was approximately $107,000 of total unrecognized compensation expense relating to unvested stock options. These costs are expected to be recognized over a weighted average period of 1.58 years.