NOTE

SHAREHOLDERS’ EQUITY

May 10, 2017,

the Company completed the sale of

2,738,096

shares of its common stock at a public offering price of

$10.50

and received net proceeds of

$26.8

million. These proceeds will support lending and investment activities, support or fund acquisitions of other institutions or branches as and if opportunities for such transactions become availabl

e, or repay certain borrowings.

December 11, 2015,

the Holding Company completed the redemption of all of the outstanding shares of the Holding Company

’s preferred stock designated as Senior Non-Cumulative Perpetual Preferred Stock, Series B (the “Series B Preferred Stock”), held by the US Treasury Department under the Small Business Lending Fund Program. The Holding Company paid

$20.0

million to redeem the Series B Preferred Stock plus

$39

thousand in accrued but unpaid dividends. The Holding Company exercised its optional redemption rights pursuant to the terms of the Securities Agreement. As a result of the SBLF Redemption, the Holding Company’s obligations under the Securities Agreement are terminated. The Holding Company funded the SBLF Redemption using the net proceeds from (i) its issuance and sale of

$10.0

million in aggregate principal amount of its

6.88%

Fixed to Floating rate Subordinated Notes due

2025

and (ii) the

$10.0

million dollar loan provided to the Holding Company by another institution maturing in

2020

at a variable rate, resetting monthly that is equal to the sum of the current

three

month LIBOR plus

400

basis points.

Stock Plans

–

The

2008

Stock Option Plan was approved by the Holding Company’s shareholders on

May 15, 2007 (

“the Plan”). The Plan was amended and restated by the

2010

Equity Incentive Plan which was approved by the Holding Company’s shareholders on

May 18, 2010.

The latest amendment and restatement of the Plan was approved by the Holding Company’s shareholders on

May 15, 2012.

The Plan provides for equity awards including stock options, restricted stock and restricted stock units which

may

constitute incentive stock options (“ISO”) under Section

422

(a) of the Internal Revenue Code of

1986,

as amended, or non-statutory stock options (“NSO”) to key personnel of the Company, including Directors. The Plan provides that ISO and NSO under the Plan

may

not

be granted at less than

100%

of fair market value of the Holding Company’s common stock on the date of the grant. Vesting

may

be accelerated in case of an option holder’s death, disability, and retirement or in case of a change of control. At

December 31, 2017,

approximately

198

thousand common shares were available for future grants under the Plan.

recognized

$53

thousand in tax benefits from vesting of restricted stock and

$245

thousand in proceeds from stock options exercised during the year ended

December 31, 2017.

Proceeds from stock options exercised were

$10

thousand and

$156

thousand for the years ended

December 31, 2016

and

2015,

respectively.

Stock Option Activity

The following tables summarize information about stock option activity for the years ended

December 31, 2017,

2016

and

2015.

								Weighted
				Weighted				Average
				Average		Aggregate		Remaining
	Number			Exercise		Intrinsic		Contractual
	of Shares			Price		Value		Term
Options outstanding December 31, 2015		234,100		$	5.77	$	319,483		5.87
Exercised		(1,900	)	$	5.29	$	4,789		3.33
Forfeited		(43,300	)	$	8.81	$	n/a		n/a
Options outstanding December 31, 2016		188,900		$	5.08	$	834,625		5.66
Exercised		(51,900	)	$	4.73	$	245,450		4.42
Forfeited		(2,500	)	$	4.05	$	n/a		n/a
Options outstanding December 31, 2017		134,500		$	5.24	$	704,350		4.76

Exercisable at December 31, 2017		118,920		$	5.13	$	609,596		4.51

	For the Years Ended December 31,
(Amounts in thousands, except per share information)	2017		2016		2015
Stock option expense	$	23	$	24	$	42
Stock option awards weighted average grant date fair value per share	$	—	$	—	$	1.33

	At December 31,
	2017		2016		2015
Unrecognized compensation costs related to non-vested stock option payments	$	17	$	29	$	55
Number of exercisable shares		119		157		163

Generally, stock options vest at

20%

per year from the date of the grant.

The unrecognized compensation costs are expected to be recognized over a weighted average period of

two

years.

Restricted Stock

Activity

The following tables summarize information about unvested restricted shares and restricted shares granted for the years ended

December 31, 2017,

2016

and

2015.

								Weighted
				Weighted				Average
				Average		Aggregate		Remaining
	Number			Grant		Intrinsic		Contractual
	of Shares			Price		Value		Term
Unvested restricted shares December 31, 2015		42,676		$	5.95	$	285,076		2.49
Granted		65,736		$	5.74	$	254,816		1.07
Vested		(38,148	)	$	5.79	$	229,198		n/a
Forfeited		(3,084	)		5.75		n/a		n/a
Unvested restricted shares December 31, 2016		67,180		$	5.84	$	638,210		1.38
Granted		45,070		$	10.35	$	466,328		1.32
Vested		(37,761	)	$	5.79	$	218,600		n/a
Unvested restricted shares December 31, 2017		74,489		$	8.60	$	640,255		1.03

	For the Years Ended December 31,
(Amounts in thousands, except per share information)	2017		2016		2015
Restricted stock compensation expense	$	196	$	215	$	89
Restricted stock awards weighted average grant date fair value per share	$	10.35	$	5.74	$	5.90

	At December 31,
	2017		2016		2015
Unrecognized compensation costs related to non-vested restricted stock payments	$	811	$	205	$	181

Restricted shares vest over a

three

five

year service period. Unvested restricted shares have

dividend or voting rights.

The unrecognized compensation costs are expected to be recognized over a weighted average period of

two

years.

Stock

Grant Activity

The following tables summarize information about shares granted

as employee compensation for the year ended

December 31, 2017.

Weighted

Stock

Average

Grant

Number

Grant

Compensation

of Shares

Price

Expense

Shares Granted during the year ended December 31, 2017

4,868

10.05

48,923