NOTE 6 – STOCK COMPENSATION EXPENSE

From time to time the Company grants stock options to its employees. The Company estimates the fair value of the options at the time they are granted to employees and expenses that fair value over the vesting period of the option grant.

On March 20, 2013, 52,900 incentive stock options were granted out of the 2012 Long Term Incentive Plan at an exercise price of $11.39, the closing market price of Premier’s common stock on the grant date. These options vest in three equal annual installments ending on March 20, 2016. On March 21, 2012, 105,700 incentive stock options were granted out of the 2002 Employee Stock Option Plan at an exercise price of $7.47, the closing market price of Premier’s common stock on the grant date. These options vest in three equal annual installments ending on March 21, 2015. On March 16, 2011, 102,000 incentive stock options were granted out of the 2002 Employee Stock Option Plan at an exercise price of $6.95 the closing market price of Premier on the grant date. These options vest in three equal annual installments ending on March 16, 2014.

The fair value of the Company's employee stock options granted is estimated at the date of grant using the Black-Scholes option-pricing model. This model requires the input of highly subjective assumptions, changes to which can materially affect the fair value estimate. Additionally, there may be other factors that would otherwise have a significant effect on the value of employee stock options granted but are not considered by the model. The assumptions used in the Black-Scholes option-pricing model are as follows:

	2013			2012			2011
Risk-free interest rate		1.96	%		2.31	%		3.58	%
Expected option life (yrs)		10.00			10.00			10.00
Expected stock price volatility		35.24	%		34.93	%		30.01	%
Dividend yield		3.86	%		2.68	%		4.03	%
Weighted average fair value of options granted during the year	$	2.85		$	2.34		$	1.63

The risk-free interest rate for the expected term of the option is based on the U.S. Treasury yield in effect at the time of the grant. The expected option life was estimated since there has been little option exercise history. The expected stock price volatility is based on historical volatilities of the Company’s common stock. The dividend yield was estimated by annualizing the current quarterly dividend on the Company’s common stock at the time of the option grant or by using historical dividends and dividend yields during the time the Company was restricted from paying dividends by its primary regulator.

Compensation expense of $128,000 was recorded for the first nine months of 2013 compared to $134,000 for the first nine months of 2012. For the three months ended September 30, $41,000 was recorded for 2013 while $49,000 was recorded for 2012. Stock-based compensation expense is recognized ratably over the requisite vesting period for all awards. Unrecognized stock-based compensation expense related to stock options totaled $150,000 at September 30, 2013. This unrecognized expense is expected to be recognized over the next 29 months based on the vesting periods of the options.

A summary of the Company’s stock option activity and related information is presented below for the nine months ended September 30:

	- - - - - - 2013 - - - - - -					- - - - - - 2012 - - - - - -
	Options			Weighted Average Exercise Price		Options			Weighted Average Exercise Price
Outstanding at beginning of year		392,366		$	9.24		350,949		$	9.69
Grants		52,900			11.39		105,700			7.47
Exercises		(60,043	)		7.63		(10,200	)		6.93
Forfeitures or expired		(12,401	)		7.90		(25,733	)		8.07
Outstanding at September 30,		372,822		$	9.76		420,716		$	9.30

Exercisable at September 30,		231,272					248,996
Weighted average remaining life of options outstanding		6.2					6.5
Weighted average fair value of options granted during the year	$	2.85				$	2.34

Options outstanding at period-end are expected to fully vest.

Additional information regarding stock options outstanding and exercisable at September 30, 2013, is provided in the following table:

	- - - - - - - - Outstanding - - - - - - - -						- - - - - - - - Currently Exercisable - - - - - - - -
Range of Exercise Prices	Number		Weighted Average Exercise Price		Aggregate Intrinsic Value		Number		Weighted Average Remaining Contractual Life		Weighted Average Exercise Price		Aggregate Intrinsic Value

$6.50 to $10.00		215,789	$	7.47	$	877		125,339		6.2	$	7.59	$	495
$10.01 to $12.50		72,933		11.46		8		21,833		1.3		11.62		-
$12.51 to $15.00		60,600		13.46		-		60,600		3.9		13.46		-
$15.01 to $17.50		23,500		16.00		-		23,500		2.4		16.00		-
Outstanding - Sept 30, 2013		372,822		9.76	$	885		231,272		4.8		10.36	$	495