(10.) SHARE-BASED COMPENSATION PLANS

The Company maintains certain stock-based compensation plans that were approved by the Company's shareholders and are administered by the Company's Board of Directors, or the Management Development and Compensation Committee of the Board. The share-based compensation plans were established to allow for the grant of compensation awards to attract, motivate and retain employees, executive officers and non-employee directors who contribute to the success and profitability of the Company by giving such persons a proprietary interest in the Company, thereby enhancing their personal interest in the Company's success.

The Company awarded grants of 36,384 shares of restricted common stock to certain members of management during the nine months ended September 30, 2015. Thirty percent of the shares subject to each grant will be earned based upon achievement of an EPS performance requirement for the Company's fiscal year ended December 31, 2015. The remaining seventy percent of the shares will be earned based on the Company's achievement of a relative total shareholder return ("TSR") performance requirement, on a percentile basis, compared to the SNL Small Cap Bank & Thrifts Index over a three-year performance period ended December 31, 2017. The shares earned based on the achievement of the EPS and TSR performance requirements, if any, will vest on February 25, 2018 assuming the recipient's continuous service to the Company.

The grant-date fair value of the TSR portion of the award granted during the nine month period ended September 30, 2015 was determined using the Monte Carlo simulation model on the date of grant, assuming the following (i) expected term of 2.85 years, (ii) risk free interest rate of 0.92%, (iii) expected dividend yield of 3.53% and (iv) expected stock price volatility over the expected term of the TSR award of 26.8%. The grant-date fair value of all other restricted stock awards is equal to the closing market price of the Company's common stock on the date of grant.

The Company granted 12,700 additional shares of restricted common stock to management during the nine months ended September 30, 2015. These shares will vest after completion of a three-year service requirement. The average market price of the restricted stock awards on the date of grant was $22.79.

During the nine months ended September 30, 2015, the Company issued a total of 2,363 shares of common stock in-lieu of cash for the annual retainer of three non-employee directors and granted a total of 10,750 restricted shares of common stock to non-employee directors, of which 5,380 shares vested immediately and 5,370 shares will vest after completion of a one-year service requirement. The market price of the stock and restricted stock on the date of grant was $23.25.

The restricted stock awards granted to management and directors in 2015 do not have rights to dividends or dividend equivalents.

The following is a summary of restricted stock award activity for the nine month period ended September 30, 2015:


				Weighted
				Average
				Market
	Number of			Price at
	Shares			Grant Date
Outstanding at beginning of year	59,113		$	17.24
Granted	59,834			17.66
Vested	(16,458	)		20.80
Forfeited	(3,041	)		20.39
Outstanding at end of period	99,448		$	16.81

As of September 30, 2015, there was $885 thousand of unrecognized compensation expense related to unvested restricted stock awards that is expected to be recognized over a weighted average period of 1.9 years.

The Company amortizes the expense related to restricted stock awards over the vesting period. Share-based compensation expense is recorded as a component of salaries and employee benefits in the consolidated statements of income for awards granted to management and as a component of other noninterest expense for awards granted to directors. The share-based compensation expense included in the consolidated statements of income is as follows (in thousands):


	Three months ended					Nine months ended
	September 30,					September 30,
	2015		2014			2015		2014
Salaries and employee benefits	$	118	$	52	$	309	$		208
Other noninterest expense		32		26		211			175
Total share-based compensation expense	$	150	$	78	$	520	$		383

The Company uses the Black-Scholes valuation method to estimate the fair value of its stock option awards. There were no stock options awarded during 2015 or 2014. The following is a summary of stock option activity for the nine months ended September 30, 2015 (dollars in thousands, except per share amounts):


					Weighted
				Weighted	Average
				Average	Remaining		Aggregate
	Number of			Exercise	Contractual		Intrinsic
	Options			Price	Term		Value
Outstanding at beginning of year	135,416		$	19.25
Exercised	(13,422	)		18.74
Expired	(14,245	)		19.87
Outstanding and exercisable at end of period	107,749		$	19.23	1.6	$	598


	Three months ended							Nine months ended
	September 30,							September 30,
	2015				2014			2015			2014
Service cost	$	581		$	479		$	1,743		$	1,438
Interest cost on projected benefit obligation		583			573			1,749			1,720
Expected return on plan assets	(1,205		)		(1,029	)		(3,615	)		(3,088	)
Amortization of prior service credit		(12	)		(12	)		(36	)		(36	)
Amortization of net actuarial losses		237			44			708			132
Net periodic pension expense	$	184		$	55		$	549		$	166

The aggregate intrinsic value (the amount by which the market price of the stock on the date of exercise exceeded the market price of the stock on the date of grant) of option exercises for the nine months ended September 30, 2015 and 2014 was $70 thousand and $35 thousand, respectively. The total cash received as a result of option exercises under stock compensation plans for the nine months ended September 30, 2015 and 2014 was $252 thousand and $160 thousand, respectively.