Note 3 - Earnings Per Common Share and Share Awards

Basic earnings per common share are computed by dividing net income by the weighted-average number of common shares outstanding during the reporting period. Diluted earnings per common share is computed by dividing net income by the combination of dilutive potential common stock, comprised of shares issuable under the Company's share-based compensation plans and the weighted-average number of common shares outstanding during the reporting period. Dilutive common share equivalents include the dilutive effect of in-the-money share-based awards, which are calculated based on the average share price for each period using the treasury stock method. Under the treasury stock method, when share-based awards are exercised, (a) the exercise price of a share-based award; (b), the amount of compensation cost, if any, for future service that the Company has not yet recognized; and (c) the amount of estimated tax benefits that would be recorded in additional paid-in capital, if any, are assumed to be used to repurchase shares in the current period. The incremental dilutive potential common shares, calculated using the treasury stock method, were 27,953 and 5,020 for the three months ended March 31, 2012 and 2011, respectively.

The following table sets forth the computation of basic and diluted earnings per share for the three months ended March 31:


		Three Months Ended
		March 31,
		2012		2011

Net income	$	1,432,139	$	1,019,207
Weighted average common shares
outstanding – Basic		2,100,835		2,234,480
Incremental shares outstanding assuming
the exercise of dilutive stock options and
SARs (share settled)		27,953		5,020
Weighted average common shares
outstanding - Diluted		2,128,788		2,239,500

Basic earnings per common share	$	0.68	$	0.46

Diluted earnings per common share	$	0.67	$	0.46

There were 4,500 and 14,000 shares excluded from the computation of diluted earnings per share for the three months ended March 31, 2012 and 2011, respectively, because these shares were anti-dilutive.

The Company has adopted employee stock award plans under which restricted stock, and options or stock appreciation rights ("SARs") to acquire shares (not to exceed 500,000 shares) of the Company's stock may be granted to key employees or directors of the Company at a price not less than the market value on the date of grant. SARs and options (which have predominantly been incentive stock options) awarded under the plans thus far are exercisable and vest immediately or within one year or at 10% to 20% per year beginning on the date of grant and generally expire in five to ten years. All SARs issued to date have been share settled only. There have not been any SARs exercised in 2012 or 2011.

A summary of share-based award transactions for all share-based award plans follows:


				Weighted	Average
				Average	Remaining		Aggregate
	Number			Exercise	Contractual		Intrinsic
	Of Shares			Price	Term (years)		Value
Outstanding as of January 1, 2011	110,800		$	28.77	4.51	$	353,955
SARs granted	3,000			41.50
Options exercised	(7,700	)		20.15
Options/SARs cancelled/forfeited/expired	(4,500	)		28.61
Outstanding as of December 31, 2011	101,600		$	29.81	3.91	$	697,780
SARs granted	-			-
Options exercised	(2,200	)		20.48
Options/SARs cancelled/forfeited/expired	-			-
Outstanding as of March 31, 2012	99,400		$	30.01	3.73	$	1,668,053

Exercisable as of March 31, 2012	98,780		$	30.01	3.74	$	1,658,350

Unvested as of March 31, 2012	620		$	31.07	2.28	$	9,703

There was approximately $18,000 and $52,000 of compensation expense relating to SARs or options vesting on or before March 31, 2012 and 2011, respectively, included in salaries, employee benefits and payroll taxes in the Consolidated Statements of Income. As of March 31, 2012, there was approximately $25,000 of total unrecognized compensation cost related to unvested share-based compensation arrangements granted under the Company's stock award plans. That cost is expected to be recognized over a weighted-average period of approximately 8 months.

There have been no stock options or SARs granted where the exercise price was less than the market price on the date of grant.