STOCK PLANS AND STOCK BASED COMPENSATION

Stock Option Plans

Under the Company’s stock option plans (the 1999 Stock Option Plan and the 2003 Stock Option Plan), the Company was able to grant options for up to a combined total of 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 June 30, 2014, there were no options for shares available for future grant under the 2003 Stock Option Plan or the 1999 Stock Option Plan.

Activity under the plans for the nine months ended June 30, 2014 and 2013 is as follows:



	Nine Months Ended June 30, 2014				Nine Months Ended June 30, 2013
	Shares		Weighted Average Exercise Price		Shares		Weighted Average Exercise Price
Options outstanding, beginning of period	162,946		$	6.96	195,626		$	7.97
Exercised	(3,600	)	4.65		—		—
Granted	135,000		9.29		29,000		6.00
Forfeited	(66,046	)	9.97		(56,680	)	9.52
Options outstanding, end of period	228,300		$	7.50	167,946		$	7.10

Options exercisable, end of period	38,300		$	4.90	68,446		$	9.55

The aggregate intrinsic value of options outstanding at June 30, 2014 was $693,000.

At June 30, 2014, there were 190,000 unvested options with an aggregate grant date fair value of $464,000, all of which the Company assumes will vest. The aggregate intrinsic value of unvested options at June 30, 2014 was $477,000. There were 14,600 options with an aggregate grant date fair value of $26,000 that vested during the nine months ended June 30, 2014.

At June 30, 2013, there were 99,500 unvested options with an aggregate grant date fair value of $208,000. There were 8,800 options with an aggregate grant date fair value of $13,000 that vested during the nine months ended June 30, 2013.

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. The expected volatility is based on historical volatility of the Company’s stock price. There were 135,000 options granted during the nine months ended June 30, 2014 with an aggregate grant date fair value of $349,000. There were 29,000 options granted during the nine months ended June 30, 2013 with an aggregate grant date fair value of $69,000.

The weighted average assumptions used for options granted during the nine months ended June 30, 2014 and 2013 were:



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

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 is to retain and attract 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 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 is the amount of the fair value of the common stock at the date of the grant to the plan participants and is recognized over a five-year vesting period, with 20% vesting on each of the five anniversaries from the date of the grant.

No MRDP shares were granted during the nine months ended June 30, 2014 or 2013. At June 30, 2014, no shares were available for future awards under the MRDP.

At June 30, 2014, there were no unvested MRDP shares. There were 3,254 MRDP shares that vested during the nine months ended June 30, 2014 with an aggregate grant date fair value of $23,000.

At June 30, 2013, there were 3,248 unvested MRDP shares with an aggregated grant date fair value of $23,000. There were 6,213 MRDP shares that vested during the nine months ended June 30, 2013 with an aggregated grant date fair value of $62,000. At June 30, 2013, no shares were available for future awards under the MRDP.

Expense for Stock Compensation Plans

Compensation expense for all stock-based plans were as follows:



	Nine Months Ended June 30,
	2014				2013
	(Dollars in thousands)
	Stock Options		Stock Grants		Stock Options		Stock Grants
Compensation expense	$	76	$	2	$	37	$	32
Related tax benefit recognized	$	—	$	—	$	13	$	11

As of June 30, 2014, the compensation expense yet to be recognized for stock-based awards that have been awarded but not vested for the years ending September 30 is as follows (dollars in thousands):



	Stock Options		Stock Grants		Total Awards
Remainder of 2014	$	28	$	—	$	28
2015	106		—		106
2016	106		—		106
2017	98		—		98
2018	67		—		67
2019	9		—		9
Total	$	414	$	—	$	414