Note 3

Stock-Based Compensation

At March 31, 2015, the Company had two stock-based employee compensation plans, the 1999 Stock Option Plan (the “Option Plan”) and the 2002 Equity Compensation Plan (the “Equity Plan”).

In 1998, the Company adopted the Option Plan pursuant to which the Company may grant stock options for up to 625,000 shares of the Company’s common stock to employees and members of the Company’s and its subsidiaries’ boards of directors. As of November 23, 2008, the Option Plan expired, and therefore, there are no shares of common stock available to grant under this plan.

In 2002, the Company adopted the Equity Plan. The Equity Plan was amended in 2011 to increase the number of shares available under the plan and extend the term to 2021. The Equity Plan authorizes the granting of options, which may be incentive stock options or non-qualified stock options, stock appreciation rights, restricted stock awards, phantom stock awards and performance share awards to directors, eligible officers and key employees of the Company. There were 269,918 shares of the Company’s common stock available for future grants and awards in the Equity Plan as of March 31, 2015.

Stock options are granted with an exercise price equal to the common stock’s fair market value at the date of grant. Director stock options have ten year terms and vest and become fully exercisable at the grant date. Most employee stock options have ten year terms and vest and become fully exercisable in 20% increments beginning after their first year of service. Certain stock options granted to executive officers of the Company have ten year terms and vest in increments of 25% with immediate vesting of the first 25% on the date of grant and vesting of the remaining three increments on the anniversary date of the grant. Stock options granted to executive officers during 2014 and the first quarter of 2015 have ten year terms with one-third of the options vested on the grant date and the remaining unvested options vesting over the next two years. Restricted stock awards are granted at the fair market value of the Company’s common stock on the grant date. One-third of restricted stock awards vested on the grant date and the remaining unvested options vest over the next two years.

The Company has only made awards of stock options and restricted stock under the Option Plan and the Equity Plan.

Total expense related to the Company’s share-based compensation plans for the three months ended March 31, 2015 and 2014 was $560,000 and $152,000, respectively. The total income tax benefit recognized in the income statement for share-based compensation arrangements was $186,000 and $51,000 for the three months ended March 31, 2015 and 2014, respectively.

Options granted for the three months ended March 31, 2015 and 2014 were 109,250 and 218,000, respectively. The weighted average per share fair value of stock option grants for the three months ended March 31, 2015 and 2014 was $5.93 and $5.60, respectively. The fair values of the options granted during all periods ended March 31, 2015 and 2014 were estimated as of the grant date using the Black-Scholes option-pricing model based on the following weighted average assumptions:

	Three Months Ended March 31,
	2015	2014
Estimated option life	6.5 Years	6.5 Years
Risk free interest rate	1.73 - 1.83%	2.17 - 2.34%
Expected volatility	36.90%	37.40%
Expected dividend yield	2.46%	1.80%

Expected volatility is based upon the average annual historical volatility of the Company’s common stock. The estimated option life is derived from specific historical data to estimate the expected term of the option, such as employee option exercise and employee post-vesting departure behavior. The risk free interest rate is based upon the seven-year U.S. Treasury note rate in effect at the time of grant. The expected dividend yield is based upon implied and historical dividend declarations.

Stock option activity during the three months ended March 31, 2015 is summarized as follows:

					Weighted
			Weighted		Average
			Average		Remaining	Aggregate
	Number of		Exercise		Contractual	Intrinsic
	Shares		Price		Term (Years)	Value
Outstanding at December 31, 2014	1,189,193		$	13.53
Granted	109,250		20.04
Exercised	(70,574	)	10.80
Forfeited	(5,150	)	13.43
Outstanding at March 31, 2015	1,222,719		$	14.27	6.47	$	6,978,208
Options exercisable at March 31, 2015	894,994		$	13.33	5.67	$	5,951,634

The intrinsic value of options exercised during the three months ended March 31, 2015 and 2014 and was $560,000 and $103,000, respectively.

A summary of the status of the Company’s non-vested stock options and changes during the three months ended March 31, 2015 is as follows:

			Weighted
			Average
	Number of		Grant Date
	Shares		Fair Value
Balance at December 31, 2014	378,550		$	5.56
Granted	109,250		5.93
Vested	(156,425	)	5.75
Forfeited	(3,650	)	4.97
Balance at March 31, 2015	327,725		$	5.60

A summary of the Company’s restricted stock grant activity during the three months ended March 31, 2015 is as follows:

			Weighted
			Average
	Number of		Grant Date
	Shares		Fair Value
Balance at December 31, 2014	—		$	—
Granted	20,000		20.05
Vested	(6,663	)	20.05
Forfeited	—		—
Balance at March 31, 2015	13,337		$	20.05

At March 31, 2015, there was $1.9 million of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the plans. The cost is expected to be recognized over a weighted average period of 2.0 years. The total fair value of shares from stock options that vested during the three months ended March 31, 2015 and 2014 was $900,000 and $667,000, respectively. The total fair value of restricted stock grants that vested during the three months ended March 31, 2015 was $134,000.