NOTE

: 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

March 31, 2018,

must be exercised within either

five

ten

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

20%

25%

each year.

March 31, 2018,

each non-employee director accrued

276

shares of common stock under the

2014

Plan. The shares were issued by the Company in the subsequent period and had a grant date fair value of

$36.35

per share, based on the closing price of the Company’s stock on the date of grant, and vested immediately.

The total grant date fair value of stock vested during the

first

three

months of

2018

was approximately

$39,000.

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

first

three

months of

2018

was approximately

$233,000

and includes approximately

$70,000

recognized as a result of the accrual of

276

shares to each non-employee director during the

first

quarter of

2018.

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

$0.03

during the

first

quarter of

2018.

As of

March 31, 2018,

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

$1,171,000

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

$482,000

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

2018

and to recognize approximately

$552,000

and

$137,000

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

2019

and

2020,

respectively.

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

first

three

months of

2017

was approximately

$109,000.

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

first

three

months of

2017

was approximately

$115,000,

and included 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

$0.01

during the

three

months ended

March 31, 2017.

As of

March 31, 2017,

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

$194,000

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

Information related to stock option activity for the

three

months ended

March 31, 2018

is as follows:

	Shares Under Options			Weighted-Average Exercise Price		Weighted- Average Remaining Contractual Term		Aggregate Intrinsic Value*
				(per share)		(in years)
Outstanding-January 1, 2018		45,068		$	10.79
Granted		-			-
Exercised		(16,000	)		10.47
Cancelled/forfeited/expired		(63	)		10.90
Outstanding at March 31, 2018		29,005		$	10.96		3.89	$	736,448

Exercisable at March 31, 2018		29,005		$	10.96		3.89	$	736,448

___________________________
* 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 May 29, 2018, was $36.35.

A summary of the status of the Company’s non-vested options and restricted stock as of

March 31, 2018

and changes during the

three

months ended

March 31, 2018,

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*
Non-vested at January 1, 2018		-		-		104,150		$	17.14
Granted		-		-		-			-
Canceled/forfeited/expired		-		-		-			-
Vested		-		-		(1,250	)		30.81
Non-vested at March 31, 2018		-	$	-		102,900		$	16.98

___________________________

* 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

March 31, 2018

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

March 31, 2018

are as follows:

Exercise Price		Shares Under Outstanding Options		Weighted-Average Remaining Contractual Term		Shares Under Exercisable Options
				(in years)
	$10.90		23,600		4.2		23,600
	$11.22		5,405		2.7		5,405
			29,005		3.9		29,005

Cash received from option exercises totaled approximately

$168,000

and

$46,000

during the

three

months ended

March 31, 2018

and

March 31, 2017,

respectively. The Company issues new shares upon option exercise.