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BENEFITS

6 Months Ended

Jun. 30, 2017

NOTE 8 – BENEFITS

Salisbury’s 401(k) Plan expense was $187,000 and $173,000, respectively, for the three month periods ended June 30, 2017 and 2016, and $472,000 and $389,000, respectively, for the six month periods ended June 30, 2017 and 2016. Other post-retirement benefit obligation expense for endorsement split-dollar life insurance arrangements was $17,000 and $19,000, respectively, for the three month periods ended June 30, 2017 and 2016, and $36,000 and $37,000, respectively, for the six month periods ended June 30, 2017 and 2016.

ESOP

Salisbury offers an ESOP to eligible employees. Under the Plan, Salisbury may make discretionary contributions to the Plan, which generally vest in full upon six years of qualified service.

Salisbury’s ESOP expense was $15,000 and $45,000, respectively, for the three month periods ended June 30, 2017 and 2016, and $49,000 and $81,000, respectively, for the six month periods ended June 30, 2017 and 2016.

Other Retirement Plans

A Non-Qualified Deferred Compensation Plan (the "NQDC Plan") was adopted effective January 1, 2013. The NQDC Plan was adopted by the Bank for the benefit of certain key employees ("Executive" or "Executives") who have been selected and approved by the Bank to participate in the NQDC Plan and who have evidenced their participation by execution of a Non-Qualified Deferred Compensation Plan Participation Agreement ("Participation Agreement") in a form provided by the Bank. The NQDC Plan is intended to comply with Internal Revenue Code ("Code") Section 409A and any regulatory or other guidance issued under such Section.

In 2017, 2016, 2015, and 2014, the Bank awarded nine (9), nine (9), six (6) and seven (7) Executives, respectively, with discretionary contributions to the plan. Expenses related to the NQDC Plan amounted to $21,000 for the second quarter of 2017 and $10,000 for the second quarter of 2016. Additionally, expenses related to the NQDC plan amounted to $41,000 and $20,000 for the six months ended June 30, 2017 and 2016, respectively. The vesting schedule is based on the Executive’s date of retirement and ranges from 7.7% per year to 50% per year with two exceptions which are 10 and 15 year cliff vesting schedules from the date of initial award.

On January 27, 2017, the Compensation Committee granted a total of 56,600 Phantom Stock Appreciation Units pursuant to the 2013 Phantom Stock Appreciation Unit and Long-Term Incentive Plan (the “Plan”), including 23,100 units to three Named Executive Officers. Mr. Cantele received 11,500 units, Mr. Davies received 6,000 units and Mr. White received 5,600 units. The units will vest on the third anniversary of the grant date.

On January 29, 2016, the Compensation Committee granted a total of 47,470 Phantom Stock Appreciation Units pursuant to the 2013 Phantom Stock Appreciation Unit and Long-Term Incentive Plan (the “Plan”), including 23,012 units to three Named Executive Officers. Mr. Cantele received 11,484 units, Mr. Davies received 5,963 units and Mr. White received 5,565 units. The units will vest on the third anniversary of the grant date. On January 2, 2015, the Compensation Committee granted a total of 48,894 Phantom Stock Appreciation Units pursuant to the 2013 Phantom Stock Appreciation Unit and Long-Term Incentive Plan (the “Plan”), including 23,012 units to three Named Executive Officers. Mr. Cantele received 11,484 units, Mr. Davies received 5,963 units and Mr. White received 5,565 units. The units will vest on the third anniversary of the grant date.

Grants of Restricted Stock and Options

Restricted Stock

On January 29, 2016, Salisbury granted a total of 15,800 shares of restricted stock pursuant to its 2011 Long Term Incentive Plan (“2011 LTIP”), which was approved by shareholders at the 2011 Annual Meeting, to 42 employees, including 6,000 shares to three Named Executive Officers. Richard J. Cantele, Jr., President and Chief Executive Officer received 5,000 and John Davies, President New York Region and Chief Lending Officer and Donald E. White, Chief Financial Officer each received 500 shares. The fair value of the stock as of the grant date was determined to be $466 thousand and the stock will be vested three years from the grant date.

Expense related to such grants in the three months ended June 30, 2017 and 2016 totaled $58 thousand and $46 thousand, respectively, and for the six months ended June 30, 2017 and 2016 totaled $122 thousand and $93 thousand, respectively. Unrecognized compensation cost relating to the awards as of June 30, 2017 and 2016 totaled $738 thousand and $483 thousand, respectively. There were no forfeitures in the three months ended June 30, 2017 and 2016, respectively. Forfeitures in the six months ended June 30, 2017 and 2016 totaled 200 and 0 shares, respectively.

The Board of Directors adopted the 2017 Long Term Incentive Plan (the “2017 LTIP”) on February 24, 2017, which was approved by shareholders at the 2017 Annual Meeting on May 17, 2017. Pursuant to the 2017 LTIP as of May 17, 2017, following shareholder approval of the 2017 LTIP, no further awards will be made under the 2011 LTIP, which shall remain in existence solely for purposes of administering outstanding grants. Under the 2017 LTIP, the total number of shares of Common Stock reserved and available for issuance in the next ten years in connection with awards under the 2017 LTIP is 200,000 shares of Common Stock, which represents approximately 7% of Salisbury’s 2,770,036 outstanding shares of Common Stock as of March 20, 2017. Of the maximum shares available under the 2017 LTIP, 200,000 shares may be issued upon the exercise of stock options (all of which may be granted as incentive stock options) and 150,000 shares may be issued as restricted stock or restricted stock units (including deferred stock units), provided that, to the extent that a share is issued as a restricted stock award or a restricted stock unit, the share would no longer be available for award as a stock option, unless the restricted stock award or restricted unit is forfeited or otherwise returned to the 2017 LTIP.

On April 28, 2017, Salisbury granted a total of 10,750 shares of restricted stock pursuant to its 2011 LTIP to 37 employees, including 2,500 shares to two Named Executive Officers. Richard J. Cantele, Jr., President and Chief Executive Officer received 2,000 and John Davies, President New York Region and Chief Lending Officer received 500 shares. The fair value of the stock as of the grant date was determined to be $419,250 and the stock will be vested three years from the grant date.

On April 28, 2017, Salisbury granted a total of 2,056 shares of stock pursuant to its 2011 LTIP to directors as a component of their annual compensation. While all directors received partial awards for their 2016 service, Louise Brown received her full award due to her pending retirement from the board. The fair value of the stock as of the grant date was determined to be $80,184.

On May 26, 2017, Salisbury granted a total of 200 shares of restricted stock pursuant to its 2017 LTIP, which was approved by shareholders at the 2017 Annual Meeting, to one employee. The fair value of the stock as of the grant date was determined to be $8,200 and the stock will be vested three years from the grant date.

On May 26, 2017, Salisbury granted a total of 2,024 shares of stock pursuant to the 2017 LTIP to directors as a component of their annual compensation. The fair value of the stock as of the grant date was determined to be $82,984.

Options

On January 9, 2017, 2,700 shares of stock options were exercised at $25.93 per share by one former Riverside Bank executive.

On February 1, 2017, 1,350 shares of stock options were exercised at $25.93 per share by one former Riverside Bank executive.

On February 9, 2017, 1,350 shares of stock options were exercised at $25.93 per share by one former Riverside Bank executive.

On February 14, 2017 and February 20, 2017, 5,400 and 1,350 shares of stock options were exercised, respectively, at $25.93 per share by two former Riverside Bank executives.

The following table presents the pre-tax expense associated with stock options and restricted stock awards as well as the related recognized tax benefits:

		Three months				Six months
Periods ended June 30, (in thousands)		2017		2016		2017		2016
Stock Options	$	—	$	—	$	—	$	—
Restricted stock awards		61		53		122		93
Total stock based compensation expense	$	61	$	53	$	122	$	93
Related tax benefits recognized in earnings	$	21	$	18	$	41	$	32

Not included in the above is the excess tax benefit related to the adoption of 2016-09 in the amount of $105 thousand for both the three and six month periods ending June 30,2017 respectively.