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 19, 2014, 46,300 incentive stock options were granted out of the 2012 Long Term Incentive Plan at an exercise price of $14.43, the closing market price of Premier’s common stock on the grant date. These options vest in three equal annual installments ending on March 19, 2017. 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.

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:

	2014			2013
Risk-free interest rate		2.78	%		1.96	%
Expected option life (yrs)		10.00			10.00
Expected stock price volatility		31.19	%		35.24	%
Dividend yield		3.33	%		3.86	%
Weighted average fair value of options granted	$	3.74		$	2.85

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 using historical dividends and dividend yields since at the time of the option grant the Company is restricted from paying dividends by its primary regulator.

On April 16, 2014, 6,000 shares of Premier’s common stock were granted to Robert W. Walker as stock-based bonus compensation under the 2012 Long-term Incentive Plan. The fair value of the stock at the time of the grant was $14.20 per share based upon the closing price of Premier’s stock of the date of grant and $85,000 of stock-based compensation was recorded as a result.

Stock-based compensation expense of $208,000 was recorded for the first nine months of 2014 compared to $128,000 for the first nine months of 2013. For the three months ended September 30, $38,000 was recorded for 2014 while $41,000 was recorded for 2013. 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 $148,000 at September 30, 2014. 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:

	2014					2013
				Weighted Average Exercise					Weighted Average Exercise
	Options			Price		Options			Price
Outstanding at beginning of year		354,281		$	9.84		392,366		$	9.24
Grants		46,300			14.43		52,900			11.39
Exercises		(77,896	)		8.52		(60,043	)		7.63
Forfeitures or expired		(8,133	)		9.27		(12,401	)		7.90
Outstanding at September 30,		314,552		$	10.86		372,822		$	9.76

Exercisable at September 30,		209,299					231,272
Weighted average remaining life of options outstanding		6.1					6.2
Weighted average fair value of options granted during the year	$	3.74				$	2.85

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

Additional information regarding stock options outstanding and exercisable at September 30, 2014, 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		136,049	$	7.51	$	970		108,356		6.4	$	7.52	$	771
$	10.01 to $12.50		55,603		11.44		178		24,343		4.7		11.50		77
$	12.51 to $15.00		99,400		13.91		72		53,100		2.9		13.46		63
$	15.01 to $17.50		23,500		16.00		0		23,500		1.4		16.00		-
Outstanding - Sept 30, 2014			314,552		10.86	$	1,220		209,299		4.8		10.44	$	911