STOCK-BASED COMPENSATION

Stock Options

2001,

the Company established a Stock Option Plan for which

0,093

shares of common stock remain reserved for issuance to employees and directors and

shares are available for future grants as of

June 30, 2017.

As of

June 30, 2017,

all remaining shares in this plan have vested and

compensation cost remains unrecognized.

options vested during the

six

months ended

June 30, 2017

and

2016.

A summary of the activity within the

2001

Stock

Option Plan follows:

	Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term in Years		Intrinsic Value

Options outstanding at January 1, 2017		81,893		$	2.95
Options exercised		(21,800	)		2.95
Options outstanding at June 30, 2017		60,093		$	2.95		1.7	$	1,103,000
Options exercisable at June 30, 2017		60,093		$	2.95		1.7	$	1,103,000

May 2013,

the Company established the

2013

Stock Option Plan for which

,400

shares of common stock are reserved and

298,400

shares are available for future grants as of

June 30, 2017.

The Plan requires that the option price

may

not

be less than the fair market value of the stock at the date the option is granted, and that the stock must be paid in full at the time the option is exercised. Payment in full for the option price must be made in cash, with Company common stock previously acquired by the optionee and held by the optionee for a period of at least

six

months, in options of the Optionee that are fully vested and exercisable or in any combination of the foregoing. The options expire on dates determined by the Board of Directors, but

not

later than

ten

years from the date of grant.

A summary of the activity within the

Stock Option Plan follows:

	Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term in Years		Intrinsic Value
Options outstanding at January 1, 2017		192,800		$	7.60
Options exercised		(16,800	)		6.55
Options outstanding at June 30, 2017		176,000		$	7.70		5.9	$	2,394,000
Options exercisable at June 30, 2017		76,200		$	7.08		5.4	$	1,084,000
Expected to vest after June 30, 2017		88,922		$	8.18		6.2	$	1,167,000

options were granted during the

six

months ended

June 30, 2017.

During the

six

months ended

June 30, 2016

the Company granted options to purchase

108,000

shares of common stock. The fair value of each option was estimated on the date of grant

using the following assumptions:

	2016
Expected life of stock options (in years)		5.1
Risk free interest rate		1.52%
Volatility		53.6%
Dividend yields		2.00%
Weighted-average fair value of options granted during the six months ended June 30, 2016		$3.55

As of

June 30, 2017,

there was $

294,000

of total unrecognized compensation cost related to non-vested, share-based compensation arrangements granted under the

2013

Plan. That cost is expected to be recognized over a weighted average period of

2.2

years. The total fair value of options vested was

$161,000

and

$76,000

for

six

months ended

June 30, 2017

and

2016

Compensation cost related to stock options recognized in operating results under the stock option plans wa

$86,000

and

$55,000

for the

six

months ended

June 30, 2017

and

2016,

respectively. The associated income tax benefit recognized was

$10,000

for the

six

months ended

June 30, 2017

and

$6,000

for the

six

months ended

June 30, 2016.

Compensation cost related to stock options recognized in operating results under the stock option plans was

$43,000

and

$30,000

for the

three

months ended

June 30, 2017

and

2016,

respectively. The associated income tax benefit recognized was

$5,000

for the

three

months ended

June 30, 2017

and

$3,000

for the

three

months ended

June 30, 2016

Cash received from option exercises under the

two

stock option plans for the

six

months ended

June 30, 2017

and

2016

were

$164,000

and

$89,000,

respectively. The total intrinsic value of options at time of exercise for the

two

plans was

$531,000

and

$145,000

for the

six

months ended

June 30, 2017

and

2016,

respectively. The tax benefit realized for the tax deductions from option exercise for the

two

plans totaled

$45,000

and

for the

six

months ended

June 30, 2017

and

2016,

respectively.

The Company determines the fair value of options on the date of grant using a Black-Scholes-Merton option pricing model that uses assumptions based on expected option life, expected stock volatility and the risk-free interest rate. The expected volatility

assumptions used by the Company are based on the historical volatility of the Company’s common stock over the most recent period commensurate with the estimated expected life of the Company’s stock options. The Company bases its expected life assumption on its historical experience and on the terms and conditions of the stock options it grants to employees. The risk-free rate is based on the U.S. Treasury yield curve for the periods within the contractual life of the options in effect at the time of the grant. The Company also makes assumptions regarding estimated forfeitures that will impact the total compensation expenses recognized under the Plans.