NOTE D: STOCK BASED COMPENSATION

The Company maintains a stock incentive plan under which incentive and nonqualified stock options and other stock awards

may

be granted. On

March 2, 2006,

the Company’s Board of Directors (the “Board”) adopted, and shareholders later approved, the

2006

Stock Option Plan (the

“2006

Plan”). Under the

2006

Plan,

750,000

shares were reserved for the issuance of stock options to directors, officers, key employees, and others. The option exercise price under the

2006

Plan is the fair market value of the stock on the date the option is granted. The fair market value is determined by the average of the highest and lowest sales prices for a share of the Company’s common stock, on its primary exchange, on the same date that the option is granted. On

March 13, 2014,

the Board adopted, and on

May 29, 2014

our shareholders approved, the

2014

Amended and Restated Stock Option and Incentive Plan (the

“2014

Plan”) which replaced the

2006

Plan. The shares which remained reserved under the

2006

Plan were carried over to the

2014

Plan and are reserved for the issuance of stock awards to directors, officers, key employees, and others. The stock option exercise price and the restricted stock purchase price under the

2014

Plan shall

not

be less than

85%

of the fair market value of the Company’s common stock on the date the award is granted. The fair market value is determined by the closing price of the Company’s common stock, on its primary exchange, on the same date that the option or award is granted.

Outstanding nonqualified stock options at

June 30, 2017,

must be exercised within either

five

ten

years from the date of grant. Outstanding nonqualified stock options granted to members of the Board vested immediately while outstanding nonqualified stock options issued to employees vest in increments of

20%

33%

each year.

During the

first

six

months of

2017,

4,298

shares of common stock were granted to non-employee directors under the

2014

Plan and

100,000

shares of common stock were granted to the Company’s Chief Executive Officer. The stock awarded to non-employee directors had a grant date fair value of

$16.29

per share, based on the closing price of the Company’s stock on the date of grant, and vested immediately. The stock awarded to the Chief Executive Officer had a grant date fair value of

$16.38

per share, based on the closing price of the Company’s stock on the date of grant, with

33%

of the award vesting on each anniversary of the date of grant for the next

three

years.

The total grant date fair value of stock and stock options vested during the

first

six

months of

2017

was approximately

$186,000.

Total pre-tax stock-based compensation expense, recognized in Salaries, wages and benefits during the

first

six

months of

2017

was approximately

$284,000

and includes approximately

$70,000

recognized as a result of the grant of

614

shares to each non-employee director during the

first

quarter of

2017.

The recognition of stock-based compensation expense decreased both diluted and basic earnings per common share by approximately

$0.02

during the

second

quarter of

2017.

The recognition of stock-based compensation expense decreased diluted and basic earnings per common share by approximately

$0.02

and

$0.03,

respectively, during the

six

months ended

June 30, 2017.

As of

June 30, 2017,

the Company had stock-based compensation plans with total unvested stock-based compensation expense of approximately

$1,663,000

which is being amortized on a straight-line basis over the remaining vesting period. As a result, the Company expects to recognize approximately

$330,000

in additional compensation expense related to unvested option awards during the remainder of

2017

and to recognize approximately

$644,000,

$552,000,

and

$137,000

in additional compensation expense related to unvested option awards during the years

2018,

2019,

and

2020,

respectively.

The total grant date fair value of stock and stock options vested during the

first

six

months of

2016

was approximately

$186,000.

Total pre-tax stock-based compensation expense, recognized in Salaries, wages and benefits during the

second

quarter of

2016

was approximately

$47,000.

Total pre-tax stock-based compensation expense, recognized in Salaries, wages and benefits during the

first

six

months of

2016

was approximately

$196,000

and includes approximately

$70,000

recognized as a result of the grant of

325

shares to each non-employee director during the

first

quarter of

2016.

The recognition of stock-based compensation expense did

not

have a recognizable impact on diluted or basic earnings per common share reported for the

second

quarter ended

June 30, 2016.

The recognition of stock-based compensation expense decreased diluted and basic earnings per common share by approximately

$0.02

during the

six

months ended

June 30, 2016.

As of

June 30, 2016,

the Company had stock-based compensation plans with total unvested stock-based compensation expense of approximately

$346,000

which is being amortized on a straight-line basis over the remaining vesting period.

Information related to stock option activity for the

six

months ended

June 30, 2017

is as follows:

	Shares Under Options			Weighted- Average Exercise Price		Weighted- Average Remaining Contractua l Term		Aggregate Intrinsi c Value*
				(per share)		(in years)
Outstanding-January 1, 2017		56,131		$	10.85
Granted		-			-
Exercised		(10,000	)		11.16
Cancelled/forfeited/expired		-			-
Outstanding at June 30, 2017		46,131		$	10.79		3.4	$	376,485

Exercisable at June 30, 2017		46,131		$	10.79		3.4	$	376,485

__________________________

* The intrinsic value of a stock option is the amount by which the market value of the underlying stock exceeds the exercise price of the option. The per share market value of our common stock, as determined by the closing price on

June 30, 2017,

was

$18.95.

A summary of the status of the Company’s nonvested options and restricted stock as of

June 30, 2017

and changes during the

six

months ended

June 30, 2017,

is as follows:

	Stock Options					Restricted Stock
	Number of Options			Weighted- Average Grant Date Fair Value		Number of Shares			Weighted- Average Grant Date Fair Value*
Nonvested at January 1, 2017		12,800		$	6.06		7,050		$	36.35
Granted		-			-		104,298			16.38
Canceled/forfeited/expired		-			-		-			-
Vested		(12,800	)		6.06		(5,548	)		19.56
Nonvested at June 30, 2017		-		$	-		105,800		$	17.54

___________________________

* The weighted-average grant date fair value was based on the closing price of the Company’s stock on the date of the grant.

The number, weighted average exercise price, and weighted average remaining contractual life of options outstanding as of

June 30, 2017

and the number and weighted average exercise price of options exercisable as of

June 30, 2017

are as follows:

Exercise Price		Shares Under Outstanding Options		Weighted-Average Remaining Contractual Term		Shares Under Exercisable Options
				(in years)
$	10.44		15,000		0.7		15,000
$	10.90		25,600		4.9		25,600
$	11.22		5,531		3.4		5,531
			46,131		3.4		46,131

Cash received from option exercises totaled approximately

$112,000

and

$74,000

during the

six

months ended

June 30, 2017

and

June 30, 2016,

respectively. The Company issues new shares upon option exercise.