Share-Based Payments

Employee Stock Option Plans

The Company’s share-based incentive plans offering stock options primarily consists of

two

plans. Under both plans,

one

new share is issued for each stock option exercised. The plans are described below.

The Company’s

1998

Incentive Plan (the

“1998

Plan”) was the Company’s primary plan through

November 2007.

Under this plan shares of common stock was made available for issuance to employees and directors. Through

December 1999,

1,066,000

options were granted that would cliff vest after

9.8

years; however, such vesting was accelerated for

637,089

of these options upon meeting certain earnings per share goals through the fiscal year ended

June 30, 2003.

Subsequent to

December 1999

and through

June 2002,

1,248,250

options were granted that would cliff vest after

6.0

years; however, such vesting was accelerated for

300,494

of these options upon meeting certain earnings per share goals through the fiscal year ended

June 30, 2005.

The Company’s

2007

Equity Incentive Plan (the

“2007

Plan”) was restated and approved by the shareholders on

December 12, 2016.

Provisions of the restated

2007

Plan include the granting of up to

2,000,000

incentive and non-qualified stock options, stock appreciation rights, restricted stock and restricted stock units. Options

may

be granted to employees, officers, non-employee directors and other service providers and

may

be granted upon such terms as the Compensation Committee of the Board of Directors determines in their sole discretion.

Of the options granted subsequent to

June 2002,

all vesting schedules are based on

-year vesting schedules, with either

one

third

one

fourth

vesting on the

first

anniversary and the remaining options vesting ratably over the remainder of the vesting term. Generally, directors and officers have

-year vesting schedules and all other employees have

-year vesting schedules. Additionally, in the event of a change in control or the occurrence of a corporate transaction, the Company’s Board of Directors has the authority to elect that all unvested options shall vest and become exercisable immediately prior to the event or closing of the transaction. All options outstanding as of

December 31, 2017

had contractual lives of

ten

years.

Under the

1998

Plan,

2,500,000

shares were authorized for grant. As of

December 31, 2017,

there were

options outstanding under the

1998

Plan.

As of

December 31, 2017,

there were

764,430

options outstanding under the

2007

Plan. As of

December 31, 2017,

the

2007

Plan had

774,456

authorized unissued options, while there were

options remaining that could be granted under the

1998

Plan.

The Company uses judgment in determining the fair value of the share-based payments on the date of grant using an option-pricing model with assumptions regarding a number of highly complex and subjective variables. These variables include, but are

not

limited to, the risk-free interest rate of the awards, the expected life of the awards, the expected volatility over the term of the awards, and the expected dividends of the awards. The Company uses the Black-Scholes option pricing model to determine the fair value of share-based payments granted under the guidelines of ASC Topic

718.

In applying the Black-Scholes methodology to the options granted, the Company used the following assumptions:

	Year ended December 31,
	2017			2016			2015
Risk-free interest rate, average		2.21	%		1.52	%		2.00	%
Expected option life, average (in years)		7.9			6.1			6.1
Expected price volatility, average		40.71	%		43.75	%		44.30	%
Expected dividend yield		2.83	%		1.71	%		1.10	%

The risk-free interest rate is determined using the U.S. Treasury rate in effect as of the date of the grant, based on the expected life of the stock option. The expected life of the stock option is determined using historical data.

The expected price volatility is determined using a weighted average of daily historical volatility of the Company’s stock price over the corresponding expected option life.

Under guidelines of ASC Topic

718,

the Company recognizes the associated compensation cost for only those awards expected to vest on a straight-line basis over the underlying requisite service period. The Company estimated the forfeiture rates based on its historical experience and expectations about future forfeitures.

The following table shows the stock option activity:

	Number of Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value
As of December 31, 2014		1,040,081		$	5.65		5.60	$	4,286
Granted		56,666			13.03
Reinstated		4,583			4.47
Expired and canceled		(1,000	)		3.42
Forfeited prior to vesting		(15,252	)		7.85
Exercised		(56,143	)		5.51
As of December 31, 2015		1,028,935		$	6.03		4.73	$	7,104
Granted		217,700			11.73
Expired and canceled		(4,186	)		12.03
Forfeited prior to vesting		(17,360	)		10.67
Exercised		(374,857	)		4.46
As of December 31, 2016		850,232		$	8.06		5.78	$	3,001
Granted		105,000			9.90
Expired and canceled		(3,144	)		10.29
Forfeited prior to vesting		(8,996	)		11.01
Exercised		(178,662	)		5.90
As of December 31, 2017		764,430		$	8.78		6.48	$	1,038
Vested and Expected to Vest at December 31, 2015		1,028,935		$	6.03		4.73	$	7,104
Vested at December 31, 2015		820,022		$	5.10		3.74	$	6,419
Vested and Expected to Vest at December 31, 2016		850,232		$	8.06		5.78	$	3,001
Vested at December 31, 2016		552,097		$	6.33		4.09	$	2,843
Vested and Expected to Vest at December 31, 2017		764,430		$	8.78		6.48	$	1,038
Vested at December 31, 2017		529,669		$	7.89		5.50	$	1,033

The weighted average per share fair value of options granted during the years ending

December 31, 2017,

2016

and

2015

was

$3.31,

$4.27,

and $

5.27

respectively. The total intrinsic value of options exercised during the years ended

December 31, 2017,

2016

and

2015

was

$646,

$2,824,

and

$404

respectively.

The total pre-tax compensation cost related to stock options recognized during the years ended

December 31, 2017,

2016,

and

2015

was

$665,

$667

and

$848,

respectively. Tax benefit from compensation cost related to stock options during the years ended

December 31, 2017,

2016

and

2015

was

$0,

$107

and

$41,

respectively. As of

December 31, 2017,

the total compensation cost related to stock options

not

yet recognized and before the effect of any forfeitures was

$829,

which is expected to be recognized over approximately the next

1.80

years on a straight-line basis.

Employee Stock Purchase Plan

During

2017,

the Company issued shares to employees under the Company’s

2016

Employee Stock Purchase Plan (the “ESPP”). The ESPP was approved by the Company’s shareholders on

December 12, 2016.

As of

December 31, 2017,

466,783

of the originally approved

500,000

shares were available for offerings under the ESPP. Offering periods under the ESPP commence on each

Jan 1

and

July 1,

and continue for a duration of

six

months. The ESPP is available to all employees who do

not

own, or are deemed to own, shares of stock making up an excess of

of the combined voting power of the Company, its parent or subsidiary.

During each offering period, each eligible employee

may

purchase shares under the ESPP after authorizing payroll deductions. Under the ESPP, each employee

may

purchase up to the lesser of

2,500

shares or

$25

of fair market value (based on the established purchase price) of the Company’s stock for each offering period. Unless the employee has previously withdrawn from the offering, his or her accumulated payroll deductions will be used to purchase common stock on the last business day of the period at a price equal to

85%

(or a

15%

discount) of the fair market value of the common stock on the

first

or last day of the offering period, whichever is lower.

Shares purchased and compensation expense associated with Employee Stock Purchase Plans were as follows:

	2017		2016		201 5
Shares purchased under ESPP plans		9,110		9,140		14,982
Plan compensation expense	$	13	$	18	$	31

Stock Repurchase Program and Cash Dividends

May 2012,

our Board of Directors authorized a stock repurchase program to purchase the Company’s common stock in the open market. A total of

272,767

shares costing

$2,598

were purchased under this program during the year ended

December 31, 2014.

The cost of shares purchased were recorded as a reduction to shareholders’ equity. On

December 2, 2016,

the Company announced the discontinuance of the stock repurchase program along with the initiation of a cash dividend plan.

March 9, 2016,

the Board of Directors of the Company authorized the repurchase of up to

$10

million of the Company’s outstanding shares of common stock under a new stock repurchase program. In connection with the repurchase authorization, the Company was authorized to complete the repurchase through open market transactions or through an accelerated share repurchase program, in each case to be executed at management’s discretion based on business and market conditions, stock price, trading restrictions, acquisition activity and other factors. The repurchase program

may

be suspended or discontinued at any time without prior notice. The transactions effectuated to date occurred in open market purchases.

March

2017,

the Board of Directors of the Company renewed and extended the repurchase program for up to an additional

$10

million of common stock over the next

twelve

months. In connection with the repurchase extension authorization, the Company was authorized to complete the repurchase through open market transactions or through an accelerated share repurchase program, in each case to be executed at management’s discretion based on business and market conditions, stock price, trading restrictions, acquisition activity and other factors. The repurchase program

may

be suspended or discontinued at any time without prior notice. The transactions effectuated to date occurred in open market purchases. This program terminated in

March 2018.

During the

twelve

months ended

December 31, 2017,

we acquired the following shares of common stock under the stock repurchase program authorized by the Board of Directors in

March 2016

and renewed and extended in

March 2017:

$ in thousands except per share price	Total Number of Shares Purchased (a)		Average Price Paid per Share (b)		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (c)		Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs ($ thousands) (d)

January 1 to March 31		78,956	$	11.75		78,956	$	9.9
April 1 to June 30		214,866		9.91		214,866		7.7
July 1 to September 30		139,570		7.84		139,570		6.6
October 1 to December 31		118,544		8.18		118,544		5.7
Total		551,936	$	9.28		551,936

From

March 11, 2016

March 17, 2016,

the Company offered to repurchase eligible vested options to purchase shares under the

1998

Plan and the

2007

Plan from employees and directors. The Company repurchased delivered options at a repurchase price equal to the difference between the closing market price on the date of the employee’s communication of accepting the repurchase offer and the exercise price of such employee’s delivered options, subject to applicable withholding taxes and charges. The Company repurchased

225,542

stock options from employees and directors at an average purchase price of

$7.77.