In October 1995, the FASB issued FAS 123, which requires disclosure of the compensation cost for stock-based incentives granted after January 1, 1995 based on the fair value at grant date for awards. Applying FAS 123 would result in pro forma net income and earnings per share amounts as follows: The fair value of each option is estimated on the date of grant using an option-pricing model with the following weighted average assumptions used for 2002, 2001 and 2000 grants: dividend yields of 2.10, 2.64 and 4.21 percent; expected volatility of 18.32, 29.91 and 25.53 percent; risk-free interest rate of 5.04, 5.30 and 6.35 percent; and expected lives of 7.0, 8.5 and 8.5 years. The weighted average fair value per share at the date of grant for shares granted during 2002, 2001 and 2000 was $7.14, $8.54 and $3.46, respectively. The Company established the RRP for certain officers and directors during the year ended December 31, 1996. A supplemental stock benefit plan adopted in 1999 and the 2001 Incentive Plan also allow grants of restricted stock. The cost of the shares of restricted stock awarded under these plans is recorded as unearned compensation, a contra equity account. The fair value of the shares on the date of award is recognized as compensation expense over the vesting period, which is generally seven years. The holders of the restricted stock receive dividends and have the right to vote the shares. For the years ended December 31, 2002, 2001 and 2000 the amount included in compensation expense was $596,000, $479,000 and $612,000 respectively. At December 31, 2002, 43,114 shares were available in the RRP plan for future awards. The weighted average grant date fair value of the restricted stock granted during the years ended December 31, 2002, 2001 and 2000 was $30.74, $28.00 and $14.49, respectively. A summary of the changes in awarded shares follows: In the ordinary course of business, the Bank has granted loans to executive officers and directors and their affiliates amounting to $1,319,000 and $1,213,000 at December 31, 2002 and 2001, respectively. During the year ended December 31, 2002, total principal additions were $130,000 and total principal payments were $24,000. 55 NOTE 14 – RELATED PARTY TRANSACTIONS: RESTRICTED STOCK PLANS 2002 2001 2000 Net income: As reported $18,453 $14,508 $12,975 Pro forma $17,422 $13,847 $12,530 Earnings per share: As reported – basic $ 3.26 $ 2.48 $ 2.14 diluted $3 . 0 2 $ 2.36 $ 2.12 Pro forma – basic $3 . 0 8 $ 2.37 $ 2.07 diluted $2 . 8 9 $ 2.28 $ 2.06 2002 2001 2000 Balance, beginning of year 90,967 132,280 155,754 Granted 35,000 4,313 13,600 Forfeited (1,716) (17,008)(5,142) Earned and issued (27,558) (28,618)(31,932) Balance, end of year 96,693 90,967 132,280