Incentive Plans

As of March 31, 2014, the Corporation had five share-based compensation plans, which are described below. These plans are the 2013 Equity Incentive Plan (“2013 Plan”), the 2010 Equity Incentive Plan (“2010 Plan”), the 2006 Equity Incentive Plan (“2006 Plan”), the 2003 Stock Option Plan and the 1996 Stock Option Plan.

For the quarters ended March 31, 2014 and 2013, the compensation cost for these plans was $126,000 and $157,000, respectively. The income tax effect recognized in the Condensed Consolidated Statements of Financial Condition for share-based compensation plans was a $(130,000) debit and a $14,000 credit in the quarters ended March 31, 2014 and 2013, respectively.

For the nine months ended March 31, 2014 and 2013, the compensation cost for these plans was $387,000 and $396,000, respectively. The income tax effect recognized in the Condensed Consolidated Statements of Financial Condition for share-based compensation plans was a $(122,000) debit and an $85,000 credit for the nine months ended March 31, 2014 and 2013, respectively.

Equity Incentive Plan. The Corporation established and the shareholders approved the 2013 Plan, the 2010 Plan and the 2006 Plan for directors, advisory directors, directors emeriti, officers and employees of the Corporation and its subsidiary. The 2013 Plan authorizes 300,000 stock options and 300,000 shares of restricted stock. The 2013 Plan also provides that no person may be granted more than 60,000 stock options or 45,000 shares of restricted stock in any one year. The 2010 Plan authorizes 586,250 stock options and 288,750 shares of restricted stock. The 2010 Plan also provides that no person may be granted more than 117,250 stock options or 43,312 shares of restricted stock in any one year. The 2006 Plan authorizes 365,000 stock options and 185,000 shares of restricted stock. The 2006 Plan also provides that no person may be granted more than 73,000 stock options or 27,750 shares of restricted stock in any one year.

Equity Incentive Plan - Stock Options. Under the 2013 Plan, 2010 Plan and 2006 Plan (collectively, “the Plans”), options may not be granted at a price less than the fair market value at the date of the grant. Options typically vest over a five-year or shorter period as long as the director, advisory director, director emeritus, officer or employee remains in service to the Corporation. The options are exercisable after vesting for up to the remaining term of the original grant. The maximum term of the options granted is 10 years.

The fair value of each option grant is estimated on the date of the grant using the Black-Scholes option valuation model with the following assumptions. The expected volatility is based on implied volatility from historical common stock closing prices for the prior 84 months. The expected dividend yield is based on the most recent quarterly dividend on an annualized basis. The expected term is based on the historical experience of all fully vested stock option grants and is reviewed annually. The risk-free interest rate is based on the U.S. Treasury note rate with a term similar to the underlying stock option on the particular grant date.



	For the Quarter Ended March 31, 2014		For the Nine Months Ended March 31, 2014
Expected volatility range	55.1	%	55.1	%
Weighted-average volatility	55.1	%	55.1	%
Expected dividend yield	2.6	%	2.6	%
Expected term (in years)	7.7		7.7
Risk-free interest rate	2.3	%	2.3	%

During the third quarter of fiscal 2014, 20,000 options were granted while 9,000 options were exercised and 9,500 options were forfeited. This compares to the third quarter of fiscal 2013 when 14,000 options were exercised. For the first nine months of fiscal 2014, 20,000 options were granted, while 49,500 options were exercised and 31,300 options were forfeited. This compares to the first nine months of fiscal 2013 when 20,000 options were granted, 42,000 options were exercised and 24,000 options were forfeited. As of March 31, 2014 and 2013, there were 499,750 and 188,450 stock options available for future grants under the Plans, respectively.

The following tables summarize the stock option activity in the Plans for the quarter and nine months ended March 31, 2014.



	For the Quarter Ended March 31, 2014
Options	Shares		Weighted- Average Exercise Price	Weighted- Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value ($000)
Outstanding at December 31, 2013	649,500		$12.89
Granted	20,000		$15.14
Exercised	(9,000	)	$7.39
Forfeited	(9,500	)	$28.31
Outstanding at March 31, 2014	651,000		$12.81	5.81	$3,704
Vested and expected to vest at March 31, 2014	608,400		$13.11	5.68	$3,410
Exercisable at March 31, 2014	438,000		$14.87	4.96	$2,236



	For the Nine Months Ended March 31, 2014
Options	Shares		Weighted- Average Exercise Price	Weighted- Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value ($000)
Outstanding at June 30, 2013	711,800		$12.71
Granted	20,000		$15.14
Exercised	(49,500	)	$7.33
Forfeited	(31,300	)	$20.64
Outstanding at March 31, 2014	651,000		$12.81	5.81	$3,704
Vested and expected to vest at March 31, 2014	608,400		$13.11	5.68	$3,410
Exercisable at March 31, 2014	438,000		$14.87	4.96	$2,236

As of March 31, 2014 and 2013, there was $717,000 and $1.1 million of unrecognized compensation expense, respectively, related to unvested share-based compensation arrangements under the Plans. The expense is expected to be recognized over a weighted-average period of 2.0 years and 2.4 years, respectively. The forfeiture rate during the first nine months of fiscal 2014 and 2013 was 20 percent for both periods, and was calculated by using the historical forfeiture experience of all fully vested stock option grants and is reviewed annually.

Equity Incentive Plan – Restricted Stock. The Corporation used 300,000 shares, 288,750 shares and 185,000 shares of its treasury stock to fund the 2013 Plan, the 2010 Plan and the 2006 Plan, respectively. Awarded shares typically vest over a five-year or shorter period as long as the director, advisory director, director emeriti, officer or employee remains in service to the Corporation. Once vested, a recipient of restricted stock will have all rights of a shareholder, including the power to vote and the right to receive dividends. The Corporation recognizes compensation expense for the restricted stock awards based on the fair value of the shares at the award date.

There was no restricted stock activity in the third quarter of fiscal 2014 and 2013, other than the award of 15,000 shares in the third quarter of fiscal 2014. For the first nine months of fiscal 2014, there was no restricted stock activity, other than the award of 15,000 shares and the forfeiture of 5,750 shares. This compares to the vesting and distribution of 800 shares and the forfeiture of 1,500 shares of restricted stock in the first nine months of fiscal 2013. As of March 31, 2014 and 2013, there were 460,350 shares and 169,600 shares of restricted stock available for future awards under the Plans.

The following tables summarize the unvested restricted stock activity in the quarter and nine months ended March 31, 2014.



	For the Quarter Ended March 31, 2014
Unvested Shares	Shares	Weighted-Average Award Date Fair Value
Unvested at December 31, 2013	66,500	$7.07
Granted	15,000	$13.96
Vested	—	$—
Forfeited	—	$—
Unvested at March 31, 2014	81,500	$8.34
Expected to vest at March 31, 2014	65,200	$8.34



	For the Nine Months Ended March 31, 2014
Unvested Shares	Shares		Weighted-Average Award Date Fair Value
Unvested at June 30, 2013	72,250		$7.07
Granted	15,000		$13.96
Vested	—		$—
Forfeited	(5,750	)	$7.07
Unvested at March 31, 2014	81,500		$8.34
Expected to vest at March 31, 2014	65,200		$8.34

As of March 31, 2014 and 2013, the unrecognized compensation expense was $529,000 and $568,000, respectively, related to unvested share-based compensation arrangements under the Plans, and reported as a reduction to stockholders’ equity. This expense is expected to be recognized over a weighted-average period of 2.3 years and 2.2 years, respectively. Similar to stock options, a forfeiture rate of 20 percent has been applied for the restricted stock compensation expense calculations in the first nine months of fiscal 2014 and 2013, for both periods. For the nine months ended March 31, 2014 and 2013, the fair value of shares vested and distributed was $0 and $9,000, respectively.

Stock Option Plans. The Corporation established the 2003 Stock Option Plan and the 1996 Stock Option Plan (collectively, the “Stock Option Plans”) for key employees and eligible directors under which options to acquire up to 352,500 shares and 1.15 million shares of common stock, respectively, may be granted. Under the Stock Option Plans, stock options may not be granted at a price less than the fair market value at the date of the grant. Stock options typically vest over a five-year period on a pro-rata basis as long as the employee or director remains in service to the Corporation. The stock options are exercisable after vesting for up to the remaining term of the original grant. The maximum term of the stock options granted is 10 years. As of March 31, 2014, no stock options remain available for future grant under the 2003 and 1996 Stock Option Plans, which expired in November 2013 and January 2007, respectively.

The fair value of each stock option grant is estimated on the date of the grant using the Black-Scholes option valuation model with the following assumptions. The expected volatility is based on implied volatility from historical common stock closing prices for the prior 84 months. The expected dividend yield is based on the most recent quarterly dividend on an annualized basis. The expected term is based on the historical experience of all fully vested stock option grants and is reviewed annually. The risk-free interest rate is based on the U.S. Treasury note rate with a term similar to the underlying stock option on the particular grant date.

For the third quarter of fiscal 2014 and 2013, there was no activity in the Stock Option Plans, except forfeitures of 50,000 shares in the third quarter of fiscal 2014. For the first nine months of fiscal 2014 and 2013, there was no activity in the Stock Option Plans, except forfeitures of 138,000 shares and 7,500 shares, respectively. As of March 31, 2014 and 2013, there were no stock options and 14,900 stock options available for future grants under the Stock Option Plans, respectively.

The following tables summarize the activity in the Stock Option Plans for the quarter and nine months ended March 31, 2014.



	For the Quarter Ended March 31, 2014
Options	Shares		Weighted- Average Exercise Price	Weighted- Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value ($000)
Outstanding at December 31, 2013	324,700		$25.17
Granted	—		$—
Exercised	—		$—
Forfeited	(50,000	)	$30.00
Outstanding at March 31, 2014	274,700		$24.29	0.84	$—
Vested and expected to vest at March 31, 2014	274,700		$24.29	0.84	$—
Exercisable at March 31, 2014	274,700		$24.29	0.84	$—



	For the Nine Months Ended March 31, 2014
Options	Shares		Weighted- Average Exercise Price	Weighted- Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value ($000)
Outstanding at June 30, 2013	412,700		$24.30
Granted	—		$—
Exercised	—		$—
Forfeited	(138,000	)	$24.30
Outstanding at March 31, 2014	274,700		$24.29	0.84	$—
Vested and expected to vest at March 31, 2014	274,700		$24.29	0.84	$—
Exercisable at March 31, 2014	274,700		$24.29	0.84	$—

As of March 31, 2014 and 2013, there was no unrecognized compensation expense at both dates, related to unvested share-based compensation arrangements under the Stock Option Plans.