16. SHARE-BASED COMPENSATION

In accordance with ASC 718, compensation expense is recognized only for those shares expected to vest, based on the Company’s historical experience and future expectations. The following table summarizes the effects of share-based compensation to options and awards granted under the Company’s equity incentive plans for each of the periods presented:

	Year Ended December 31,
	2012		2011		2010
	(Dollars in thousands)

Salaries and employee benefits	$	4,432	$	2,409	$	319
Directors stock awards	90		153		55
Legal and professional services	59		55		—
Net share-based compensation effect	$	4,581	$	2,617	$	374

The Company’s share-based compensation arrangements are described below:

Stock Option Plans

We have adopted stock option plans for the purpose of granting options to purchase the Company’s common stock to directors, officers and other key individuals. Option awards are generally granted with an exercise price equal to the market price of the Company’s common stock at the date of grant; those option awards generally vest based on three or five years of continuous service and have 10-year contractual terms. Certain option and share awards provide for accelerated vesting if there is a change in control (as defined in the stock option plans below). We have historically issued new shares of common stock upon exercises of stock options and purchases of restricted awards.

In February 1997, we adopted the 1997 Stock Option Plan (“1997 Plan”) basically as a continuance of the 1986 Stock Option Plan. In April 1997, our shareholders approved the 1997 Plan, which provided 2,000,000 shares of the Company’s common stock for grants to employees as qualified incentive stock options and to directors as nonqualified stock options.

In September 2004, we adopted and our shareholders approved the 2004 Stock Compensation Plan (“2004 Plan”) making available 1,500,000 shares for grants to employees and directors. Upon adoption of the 2004 Plan, all unissued shares from the 1997 Plan were frozen and no new options will be granted under the 1997 Plan. Optionees may exercise outstanding options granted pursuant to the 1997 Plan until the expiration of the respective options in accordance with the original terms of the 1997 Plan. In May 2007, the 2004 Plan was amended to increase the number of shares available for grant by an additional 1,000,000 shares. In April 2011, the 2004 Plan was amended to increase the number of shares authorized from 1,402,589 to 4,944,831. To satisfy share issuances pursuant to the share-based compensation programs, we issue new shares from the 2004 Plan.

At December 31, 2012, 2011 and 2010, a total of 1,604,198, 2,539,341 and 57,758 shares, respectively, were available for future grants.

The fair value of each option award is estimated on the date of grant based on the following:

Valuation and amortization method—We estimate the fair value of stock options granted using the Black-Scholes option pricing formula and a single option award approach. We use historical data to estimate option exercise and employee termination activity within the valuation model; separate groups of employees that have similar historical exercise behavior are considered separately for valuation purposes. This fair value is then amortized on a straight-line basis over the requisite service periods of the awards, which is generally the vesting period.

Expected life—The expected life of options represents the period of time that options granted are expected to be outstanding.

Expected volatility—Expected volatilities are based on the historical volatility of the Company’s common stock.

Risk-free interest rate—The risk-free interest rate for periods within the contractual life of the option is based on the Treasury yield curve in effect at the time of grant.

Expected dividend—The expected dividend assumption is based on our current expectations about its anticipated dividend policy.

Stock Option Activity

The fair value of the Company’s stock options granted to employees was estimated using the following weighted-average assumptions:

	Year Ended December 31,
	2012			2011			2010

Expected volatility	77.2		%	—		%	—		%
Risk free interest rate	1.8		%	—		%	—		%
Expected dividends	1.0		%	—		%	—		%
Expected life (in years)	8.0			—			—
Weighted average fair value	$	9.65		$	—		$	—

No stock options were granted during 2011 and 2010.

The following is a summary of option activity for our stock option plans for the year ended December 31, 2012:

					Weighted Average	Aggregate
			Weighted		Remaining	Intrinsic
			Average		Contractual Term	Value
	Shares		Exercise Price		(in years)	(in thousands)

Outstanding at January 1, 2012	40,166		$	428.16
Changes during the year:
Granted	319,615		14.33
Expired	(8,105	)	180.49
Forfeited	(36,307	)	14.31
Outstanding at December 31, 2012	315,369		62.77		8.7	$	356

Vested and expected to vest at December 31, 2012	283,373		68.24		8.6	315

Exercisable at December 31, 2012	32,061		490.77		2.8	—

The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying option awards and the quoted price of the Company’s common stock for the options that were in-the-money at December 31, 2012. During the years ended December 31, 2012, 2011 and 2010, no stock options were exercised.

As of December 31, 2012, the total compensation cost that was not yet recognized related to stock options granted to employees under our stock option plans was approximately $2.3 million, net of estimated forfeitures. This cost will be amortized on a straight-line basis over a weighted-average period of 3.9 years and will be adjusted for subsequent changes in estimated forfeitures. The total fair value of shares vested during the years ended December 31, 2012, 2011 and 2010 was $14 thousand, $17 thousand and $0.2 million, respectively.

Restricted Stock Awards and Units

Under the 1997 and 2004 Plans, we awarded restricted stock awards and units to our non-officer directors and certain senior management personnel. The awards typically vest over a three or five year period. Compensation expense is measured as the market price of the stock awards on the grant date, and is recognized over the specified vesting periods.

The table below presents the activity of restricted stock awards and units for the year ended December 31, 2012:

			Weighted Average
			Grant Date
	Shares		Fair Value

Nonvested at January 1, 2012	1,015,304		$	14.86
Changes during the year:
Granted	365,626		14.39
Forfeited	(84,073	)	14.25
Vested	(198,051	)	15.66
Nonvested at December 31, 2012	1,098,806		14.61

Vested and expected to vest at December 31, 2012	1,098,806		14.61

As of December 31, 2012, there was $12.6 million of total unrecognized compensation cost related to restricted stock awards and units that is expected to be recognized over a weighted-average period of 3.5 years.