Under SOP 93-6, unearned ESOP shares are not considered outstanding and are shown as a reduction of shareholders' equity as unearned compensation. Dividends on unallocated ESOP shares are considered to be compensation expense. The Company will recognize compensation cost equal to the fair value of the ESOP shares during the periods in which they become committed to be released. To the extent that the fair value of the Company's ESOP shares differ from the cost of such shares, this differential will be credited to equity. The Company will receive a tax deduction equal to the cost of the shares released. As the loan is internally leveraged, the loan receivable from the ESOP to the Company is not reported as an asset nor is the debt of the ESOP shown as a Company liability. Dividends on allocated shares have been used to pay the ESOP debt. Compensation cost related to the ESOP for the years ended December 31, 2002, 2001 and 2000 was $1,621,000, $1,238,000 and $741,000, respectively. The fair value of the unearned ESOP shares, using the closing quoted market price per share at year end was approximately $4,065,000 and $4,217,000 at December 31, 2002 and 2001, respectively. A summary of the ESOP share allocation as of December 31 of the year indicated is as follows: The Company issues stock options under various plans to directors, officers and other key employees. The option exercise price cannot be less than the fair value of the underlying common stock as of the date of the option grant and the maximum option term cannot exceed ten years. The stock options granted have vesting periods from two to seven years. There was no compensation expense recorded in 2002, 2001 or 2000 related to stock option plans. At December 31, 2002 future awards of 295,009 shares could be made under the stock option plans. The stock option plans also permit the granting of Stock Appreciation Rights (“SAR’s”). SAR’s entitle the holder to receive, in the form of cash or stock, the increase in the fair value of Company stock from the date of grant to the date of exercise. No SAR’s have been issued under the plans. STOCK OPTION PLANS 2002 2001 2000 Shares allocated beginning of year 355,789 343,029 304,067 Shares allocated during the year 50,899 54,539 58,183 Shares distributed during the year (35,163) (41,779)(19,221) Total allocated shares held by ESOP at year end 371,525 355,789 343,029 Unreleased shares 101,219 152,118 206,657 Total ESOP shares 472,744 507,907 549,686 53