Stock Compensation Plans

Stock Option Plans

Under the Company’s stock option plans (1999 Stock Option Plan and 2003 Stock Option Plan), the Company was able to grant options for up to 1,622,500 shares of common stock to employees, officers and directors. Shares issued may be purchased in the open market or may be issued from authorized and unissued shares. The exercise price of each option equals the fair market value of the Company’s common stock on the date of grant. Generally, options vest in 20% annual installments on each of the five anniversaries from the date of the grant. At September 30, 2014, there were no options for common shares available for future grant under the Company's stock option plans.

Stock option activity for the years ended September 30, 2014, 2013 and 2012 is summarized as follows:



	Number of Shares		Weighted Average Exercise Price
Outstanding September 30, 2011	137,726		$	9.25
Options granted	76,000		5.04
Options forfeited	(18,100	)	5.44
Outstanding September 30, 2012	195,626		7.97

Options granted	29,000		6.00
Options forfeited	(61,680	)	9.69
Outstanding September 30, 2013	162,946		6.96

Options granted	135,000		9.29
Options exercised	(5,000	)	4.66
Options forfeited	(71,546	)	9.87
Outstanding September 30, 2014	221,400		$	7.49

The Company uses the Black-Scholes option pricing model to estimate the fair value of stock-based awards with the weighted average assumptions noted in the following table. The risk-free interest rate is based on the U.S. Treasury rate of a similar term

as the stock option at the particular grant date. The expected life is based on historical data, vesting terms, and estimated exercise dates. The expected dividend yield is based on the most recent quarterly dividend on an annualized basis in effect at the time the options were granted, adjusted, if appropriate, for management's expectations regarding future dividends. At the time the options were granted for the years ended September 30, 2013 and 2012, the Company was under regulatory restrictions prohibiting the payment of dividends. Since management did not know when the Company would be allowed to pay dividends, an expected dividend yield of 0% was used. The expected volatility is based on historical volatility of the Company’s stock price. There were 76,000 options granted during the year ended September 30, 2012 with an aggregate grant date fair value of $150,000. There were 29,000 options granted during the year ended September 30, 2013 with an aggregate grant date fair value of $69,000. There were 135,000 options granted during the year ended September 30, 2014 with an aggregate grant date fair value of $349,000. The weighted average assumptions for options granted during the years ended September 30, 2014, 2013 and 2012 were as follows:



	2014			2013			2012
Expected volatility	39		%	45		%	45		%
Expected term (in years)	5			5			5
Expected dividend yield	2.51		%	—		%	—		%
Risk free interest rate	1.41		%	0.76		%	0.76		%
Grant date fair value per share	$	2.59		$	2.37		$	1.97

There were 43,800 options that vested during the year ended September 30, 2014 with a total fair value of $80,000. There were 17,300 options that vested during the year ended September 30, 2013 with a total fair value of $32,000. There were 5,000 options that vested during the year ended September 30, 2012 with a total fair value of $6,000.

At September 30, 2014 there were 177,600 unvested options with an aggregate grant date fair value of $434,000, all of which the Company assumes will vest. The unvested options had an aggregate intrinsic value of $435,000 at September 30, 2014. At September 30, 2013 there were 91,000 unvested options with an aggregate grant date fair value of $189,000.

There were 5,000 options exercised during the year ended September 30, 2014, with an intrinsic value of $25,000. Proceeds from the exercise of these options totaled $23,000 and the related tax benefit recognized was $8,000 There were no options exercised during the years ended September 30, 2013 and 2012.

Additional information regarding options outstanding at September 30, 2014, is as follows:



	Options Outstanding				Options Exercisable
Range of Exercise Prices ($)	Number	Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)	Number	Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)
$ 4.01 - 4.55	37,700	$	4.26	6.2	23,600	$	4.34	5.9
5.86 - 6.00	61,700	5.92		8.0	20,200	5.90		8.0
9.00	96,000	9.00		9.1	—	n/a		n/a
10.26 - 10.59	26,000	10.34		9.3	—	n/a		n/a
	221,400	$	7.49	8.3	43,800	$	5.06	6.9

The aggregate intrinsic value of options outstanding at September 30, 2014 was $675,000. The aggregate intrinsic value of options outstanding at September 30, 2013 was $443,000. The aggregate intrinsic value of options outstanding at September 30, 2012 was $88,000.

Stock Grant Plan

The Company adopted the MRDP in 1998 for the benefit of employees, officers and directors of the Company. The objective of the MRDP was to retain personnel of experience and ability in key positions by providing them with a proprietary interest in the Company.

The MRDP allowed for the issuance to participants of up to 529,000 shares of the Company’s common stock. Awards under the MRDP were made in the form of restricted shares of common stock that are subject to restrictions on the transfer of ownership and are subject to a five-year vesting period. Compensation expense in the amount of the fair value of the common stock at the date of the grant to the plan participants was recognized over a five-year vesting period, with 20% vesting on each of the five anniversaries from the date of the grant. At September 30, 2014, there were no shares available for future awards under the MRDP. There were no MRDP shares granted during the years ended September 30, 2014, 2013 or 2012.

A summary of MRDP shares vested for the years ended September 30, 2014, 2013 and 2012 were as follows:



	2014		2013		2012
Shares vested	3,254		6,207		10,831
Aggregate vesting date fair value	$	30,000	$	38,000	$	46,000

A summary of unvested MRDP shares as of September 30, 2014 and changes during the year ended September 30, 2014, were as follows:



	Shares	Weighted Average Grant Date Fair Value
Unvested shares, beginning of period	3,254	$	7.01
Shares vested	3,254	7.01

Unvested shares, end of period	—	$	—

Expense for Stock Compensation Plans

Compensation expense recorded in the consolidated financial statements for all stock-based plans was as follows for the years ended September 30, 2014, 2013 and 2012 (dollars in thousands):



	2014			2013			2012
Stock options	$	112		$	49		$	15
MRDP stock grants	2			39			105
Less: related tax benefit recognized	(10		)	(8		)	(28		)
	$	104		$	80		$	92

The compensation expense to be recognized in the future years ending September 30 for stock options that had been awarded as of September 30, 2014 is as follows (in thousands):



2015	$	106
2016	106
2017	98
2018	67
2019	9
	$	386