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Incentive Plans

3 Months Ended

Mar. 31, 2012

Note 10: Incentive Plans

As of March 31, 2012, the Corporation had four share-based compensation plans, which are described below. These plans are the 2010 Equity Incentive Plan (“2010 Plan”), the 2006 Equity Incentive Plan (“2006 Plan”), the 2003 Stock Option Plan and the 1996 Stock Option Plan. The compensation cost that has been charged against income for these plans was $284,000 and $321,000 for the quarters ended March 31, 2012 and 2011, respectively, and there was no tax benefit from these plans during either quarter. For the nine months ended March 31, 2012 and 2011, the compensation cost for these plans was $1.1 million and $754,000, respectively, and there was no tax benefit from these plans during either period.

Equity Incentive Plan. The Corporation established and the shareholders approved the 2010 Plan and the 2006 Plan for directors, advisory directors, directors emeriti, officers and employees of the Corporation and its subsidiary. The 2010 Plan authorizes 586,250 stock options and 288,750 shares of restricted stock. The 2010 Plan also provides that no person may be granted more than 117,250 stock options or 43,312 shares of restricted stock in any one year. The 2006 Plan authorizes 365,000 stock options and 185,000 shares of restricted stock. The 2006 Plan also provides that no person may be granted more than 73,000 stock options or 27,750 shares of restricted stock in any one year.

Equity Incentive Plan - Stock Options. Under the 2010 Plan and 2006 Plan (collectively, “the Plans”), options may not be granted at a price less than the fair market value at the date of the grant. Options typically vest over a five-year or shorter period as long as the director, advisory director, director emeritus, officer or employee remains in service to the Corporation. The options are exercisable after vesting for up to the remaining term of the original grant. The maximum term of the options granted is 10 years.

The fair value of each option grant is estimated on the date of the grant using the Black-Scholes option valuation model with the following assumptions. The expected volatility is based on implied volatility from historical common stock closing prices for the prior 84 months. The expected dividend yield is based on the most recent quarterly dividend on an annualized basis. The expected term is based on the historical experience of all fully vested stock option grants and is reviewed annually. The risk-free interest rate is based on the U.S. Treasury note rate with a term similar to the underlying stock option on the particular grant date.

There was no activity under the Plans in the third quarter and first nine months of either fiscal 2012 or 2011, other than the exercise of 9,000 options in the third quarter and first nine months of fiscal 2012. As of March 31, 2012 and 2011, there were 193,450 stock options and 596,450 stock options available for future grants under the Plans, respectively.

The following table summarizes the stock option activity in the Plans for the quarter and nine months ended March 31, 2012.

Options	Shares		Weighted- Average Exercise Price	Weighted- Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value ($000)
Outstanding at January 1, 2012	766,800		$ 12.07
Granted	-		$ -
Exercised	(9,000	)	$ 7.03
Forfeited	-		$ -
Outstanding at March 31, 2012	757,800		$ 12.13	7.57	$ 2,113
Vested and expected to vest at March 31, 2012	660,800		$ 12.82	7.33	$ 1,773
Exercisable at March 31, 2012	345,800		$ 17.73	5.60	$ 671

Options	Shares		Weighted- Average Exercise Price	Weighted- Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value ($000)
Outstanding at July 1, 2011	766,800		$ 12.07
Granted	-		$ -
Exercised	(9,000	)	$ 7.03
Forfeited	-		$ -
Outstanding at March 31, 2012	757,800		$ 12.13	7.57	$ 2,113
Vested and expected to vest at March 31, 2012	660,800		$ 12.82	7.33	$ 1,773
Exercisable at March 31, 2012	345,800		$ 17.73	5.60	$ 671

As of March 31, 2012 and 2011, there was $1.3 million and $332,000 of unrecognized compensation expense, respectively, related to unvested share-based compensation arrangements under the Plans. The expense is expected to be recognized over a weighted-average period of 3.2 years and 0.7 years, respectively. The forfeiture rate during the first nine months of fiscal 2012 and 2011 was 20 percent and 25 percent, respectively, and was calculated by using the historical forfeiture experience of all fully vested stock option grants and is reviewed annually.

Equity Incentive Plan – Restricted Stock. The Corporation used 288,750 shares and 185,000 shares of its treasury stock to fund the 2010 Plan and the 2006 Plan, respectively. Awarded shares typically vest over a five-year or shorter period as long as the director, advisory director, director emeriti, officer or employee remains in service to the Corporation. Once vested, a recipient of restricted stock will have all rights of a shareholder, including the power to vote and the right to receive dividends. The Corporation recognizes compensation expense for the restricted stock awards based on the fair value of the shares at the award date.

There was no restricted stock activity in the third quarter of fiscal 2012 or 2011, other than the vesting and distribution of 11,200 shares in the third quarter of fiscal 2012 and 2011. For the first nine months of fiscal 2012 and 2011, a total of 111,500 shares and 12,000 shares of restricted stock, respectively, were vested and distributed, while no restricted stock was awarded or forfeited during either period. As of March 31, 2012 and 2011, there were 168,100 shares and 314,100 shares of restricted stock available for future awards under the Plans, respectively.

The following table summarizes the unvested restricted stock activity in the quarter and nine months ended March 31, 2012.

Unvested Shares	Shares		Weighted-Average Award Date Fair Value
Unvested at January 1, 2012	158,000		$ 8.50
Granted	-		$ -
Vested	(11,200	)	$ 26.49
Forfeited	-		$ -
Unvested at March 31, 2012	146,800		$ 7.13
Expected to vest at March 31, 2012	117,440		$ 7.13

Unvested Shares	Shares		Weighted-Average Award Date Fair Value
Unvested at July 1, 2011	258,300		$ 7.75
Granted	-		$ -
Vested	(111,500	)	$ 8.56
Forfeited	-		$ -
Unvested at March 31, 2012	146,800		$ 7.13
Expected to vest at March 31, 2012	117,440		$ 7.13

As of March 31, 2012 and 2011, the unrecognized compensation expense was $878,000 and $503,000, respectively, related to unvested share-based compensation arrangements under the Plans, and reported as a reduction to stockholders’ equity. This expense is expected to be recognized over a weighted-average period of 3.2 years and 0.7 years, respectively. Similar to stock options, a forfeiture rate of 20 percent and 25 percent has been applied for the restricted stock compensation expense calculations in the first nine months of fiscal 2012 and 2011, respectively. The fair value of shares vested and distributed during the quarter ended March 31, 2012 and 2011 was $108,000 and $88,000, respectively. The fair value of shares vested and distributed during the nine months ended March 31, 2012 and 2011 was $922,000 and $92,000, respectively.

Stock Option Plans. The Corporation established the 2003 Stock Option Plan and the 1996 Stock Option Plan (collectively, the “Stock Option Plans”) for key employees and eligible directors under which options to acquire up to 352,500 shares and 1.15 million shares of common stock, respectively, may be granted. Under the Stock Option Plans, stock options may not be granted at a price less than the fair market value at the date of the grant. Stock options typically vest over a five-year period on a pro-rata basis as long as the employee or director remains in service to the Corporation. The stock options are exercisable after vesting for up to the remaining term of the original grant. The maximum term of the stock options granted is 10 years. As of March 31, 2012 and 2011, the number of stock options available for future grants under the 2003 Stock Option Plan was 14,900 stock options. No stock options remain available for future grant under the 1996 Stock Option Plan, which expired in January 2007.

The fair value of each stock option grant is estimated on the date of the grant using the Black-Scholes option valuation model with the following assumptions. The expected volatility is based on implied volatility from historical common stock closing prices for the prior 84 months. The expected dividend yield is based on the most recent quarterly dividend on an annualized basis. The expected term is based on the historical experience of all fully vested stock option grants and is reviewed annually. The risk-free interest rate is based on the U.S. Treasury note rate with a term similar to the underlying stock option on the particular grant date.

There was no activity in the Stock Option Plans for either the third quarter of fiscal 2012 or 2011. For the first nine months of fiscal 2012 and 2011, there was no activity in the Stock Option Plans, except forfeitures of 62,700 shares and 67,500 shares, respectively.

The following is a summary of the activity in the Stock Option Plans for the quarter and nine months ended March 31, 2012.

Options	Shares	Weighted- Average Exercise Price	Weighted- Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value ($000)
Outstanding at January 1, 2012	420,200	$ 24.11
Granted	-	$ -
Exercised	-	$ -
Forfeited	-	$ -
Outstanding at March 31, 2012	420,200	$ 24.11	2.72	$ -
Vested and expected to vest at March 31, 2012	418,200	$ 24.13	2.71	$ -
Exercisable at March 31, 2012	410,200	$ 24.21	2.66	$ -

Options	Shares		Weighted- Average Exercise Price	Weighted- Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value ($000)
Outstanding at July 1, 2011	482,900		$ 22.23
Granted	-		$ -
Exercised	-		$ -
Forfeited	(62,700	)	$ 9.67
Outstanding at March 31, 2012	420,200		$ 24.11	2.72	$ -
Vested and expected to vest at March 31, 2012	418,200		$ 24.13	2.71	$ -
Exercisable at March 31, 2012	410,200		$ 24.21	2.66	$ -

As of March 31, 2012 and 2011, there was $18,000 and $115,000 of unrecognized compensation expense, respectively, related to unvested share-based compensation arrangements under the Stock Option Plans. This expense is expected to be recognized over a weighted-average period of 0.3 years and 0.9 years, respectively. The forfeiture rate during the first nine months of fiscal 2012 and 2011 was 20 percent and 25 percent, respectively, and was calculated by using the historical forfeiture experience of all fully vested stock option grants and is reviewed annually.