Incentive Plans

As of September 30, 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 September 30, 2014 and 2013, the compensation cost for these plans was $143,000 and $131,000, respectively. The income tax effect recognized in the Condensed Consolidated Statements of Financial Condition for share-based compensation plans was a $16,000 debit and a $7,000 credit in the quarters ended September 30, 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 September 30, 2014
Expected volatility range	53.7	%
Weighted-average volatility	53.7	%
Expected dividend yield	3.0	%
Expected term (in years)	7.2
Risk-free interest rate	2.2	%

During the first quarter of fiscal 2015, 369,000 options were granted while 2,000 options were exercised and no options were forfeited. This compares to the first quarter of fiscal 2014 when 5,000 options were exercised and no options were granted or forfeited. As of September 30, 2014 and 2013, there were 130,750 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 ended September 30, 2014.



	For the Quarter Ended September 30, 2014
Options	Shares		Weighted- Average Exercise Price	Weighted- Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value ($000)
Outstanding at June 30, 2014	648,000		$12.84
Granted	369,000		$14.59
Exercised	(2,000	)	$7.03
Forfeited	—		$—
Outstanding at September 30, 2014	1,015,000		$13.49	7.01	$3,282
Vested and expected to vest at September 30, 2014	898,600		$13.62	6.76	$3,020
Exercisable at September 30, 2014	423,000		$14.92	4.35	$1,972

As of September 30, 2014 and 2013, there was $2.8 million and $770,000 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 3.5 years and 2.0 years, respectively. The forfeiture rate during the first three months of fiscal 2015 and 2014 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 first quarter of fiscal 2015 and 2014, other than the award of 185,000 shares in the first quarter of fiscal 2015. As of September 30, 2014 and 2013, there were 275,350 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 ended September 30, 2014.



	For the Quarter Ended September 30, 2014
Unvested Shares	Shares	Weighted-Average Award Date Fair Value
Unvested at June 30, 2014	81,500	$8.34
Granted	185,000	$13.30
Vested	—	$—
Forfeited	—	$—
Unvested at September 30, 2014	266,500	$11.78
Expected to vest at September 30, 2014	213,200	$11.78

As of September 30, 2014 and 2013, the unrecognized compensation expense was $2.9 million and $454,000, 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 3.7 years and 1.7 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 three months of fiscal 2015 and 2014.

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 September 30, 2014, no stock options remain available for future grants 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 was estimated on the date of the grant using the Black-Scholes option valuation model with the following assumptions. The expected volatility was based on implied volatility from historical common stock closing prices for the prior 84 months. The expected dividend yield was based on the most recent quarterly dividend on an annualized basis. The expected term was based on the historical experience of all fully vested stock option grants and is reviewed annually. The risk-free interest rate was based on the U.S. Treasury note rate with a term similar to the underlying stock option on the particular grant date.

For the first quarter of fiscal 2015 and 2014, there was no activity in the Stock Option Plans, except forfeitures of 17,500 shares and 75,000 shares, respectively. As of September 30, 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 ended September 30, 2014.



	For the Quarter Ended September 30, 2014
Options	Shares		Weighted- Average Exercise Price	Weighted- Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value ($000)
Outstanding at June 30, 2014	95,000		$23.33
Granted	—		$—
Exercised	—		$—
Forfeited	(17,500	)	$23.00
Outstanding at September 30, 2014	77,500		$23.41	2.25	$—
Vested and expected to vest at September 30, 2014	77,500		$23.41	2.25	$—
Exercisable at September 30, 2014	77,500		$23.41	2.25	$—

As of September 30, 2014 and 2013, there was no unrecognized compensation expense at both dates, related to unvested share-based compensation arrangements under the Stock Option Plans.