Incentive Plans

As of December 31, 2017, the Corporation had two active share-based compensation plans, which are described below. These plans are the 2013 Equity Incentive Plan (“2013 Plan”) and the 2010 Equity Incentive Plan (“2010 Plan”). Additionally, the Corporation had one inactive share-based compensation plan - the 2006 Equity Incentive Plan (“2006 Plan”) where no new awards can be granted but outstanding grants remain eligible for exercise.

For the quarters ended December 31, 2017 and 2016, the compensation cost for these plans was $258,000 and $275,000, respectively. The income tax expense recognized in the Condensed Consolidated Statements of Operations per adoption of ASU 2016-09 for share-based compensation plans for the quarter ended December 31, 2017 was $7,000; while the income tax expense recognized in the Condensed Consolidated Statements of Stockholders' Equity for share-based compensation plans for the quarter ended December 31, 2016 was $8,000.

For the first six months ended December 31, 2017 and 2016, the compensation cost for these plans was $524,000 and $977,000, respectively. The income tax benefit recognized in the Condensed Consolidated Statements of Operations per adoption of ASU 2016-09 for share-based compensation plans for the first six months ended December 31, 2017 was $20,000; while the income tax benefit recognized in the Condensed Consolidated Statements of Stockholders' Equity for share-based compensation plans for the first six months ended December 31, 2016 was $179,000.

Equity Incentive Plans. The Corporation established and the shareholders approved the 2013 Plan, the 2010 Plan and the 2006 Plan (collectively, "the Plans") 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 authorized 365,000 stock options and 185,000 shares of restricted stock. The 2006 Plan also provided 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 Plans - Stock Options. Under 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.

During the second quarter of fiscal 2018, no options were granted, while 5,750 options were exercised and no options were forfeited. This compares to the second quarter of fiscal 2017 when 6,000 options were granted, 22,750 options were exercised and 11,250 options were forfeited. During the first six months of fiscal 2018, no options were granted, 27,250 options were exercised and 2,500 options were forfeited. This compares to the first six months of fiscal 2017 when 26,000 options were granted, while 23,750 options were exercised and 27,250 options were forfeited. As of December 31, 2017 and 2016, there were 147,500 and 138,000 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 six months ended December 31, 2017.



	For the Quarter Ended December 31, 2017
Options	Shares		Weighted- Average Exercise Price	Weighted- Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value ($000)
Outstanding at September 30, 2017	591,250		$12.27
Granted	—		$—
Exercised	(5,750	)	$14.59
Forfeited	—		$—
Outstanding at December 31, 2017	585,500		$12.25	5.29	$3,633
Vested and expected to vest at December 31, 2017	545,350		$12.03	5.17	$3,501
Exercisable at December 31, 2017	384,750		$10.67	4.41	$2,973



	For the Six Months Ended December 31, 2017
Options	Shares		Weighted- Average Exercise Price	Weighted- Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value ($000)
Outstanding at June 30, 2017	615,250		$12.14
Granted	—		$—
Exercised	(27,250	)	$9.57
Forfeited	(2,500	)	$14.59
Outstanding at December 31, 2017	585,500		$12.25	5.29	$3,633
Vested and expected to vest at December 31, 2017	545,350		$12.03	5.17	$3,501
Exercisable at December 31, 2017	384,750		$10.67	4.41	$2,973

As of December 31, 2017 and 2016, there was $652,000 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 1.1 years and 2.0 years, respectively. The forfeiture rate during the first six months of fiscal 2018 and 2017 was 20 percent for both periods, and was calculated by using the historical forfeiture experience of stock option grants and is reviewed annually.

Equity Incentive Plans – 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 second quarter of fiscal 2018. This compares to the award of 3,000 shares, the forfeiture of 8,250 shares and no vesting of restricted stock in the second quarter of fiscal 2017. For the first six months of fiscal 2018, there was no restricted stock activity, other than the forfeiture of 2,000 shares. This compares to the award of 18,000 shares, the forfeiture of 15,250 shares and the vesting of 87,750 shares of restricted stock in the first six months of fiscal 2017. As of December 31, 2017 and 2016, there were 267,750 shares and 271,750 shares of restricted stock, respectively available for future awards under the Plans.

The following table summarizes the unvested restricted stock activity in the quarter and six months ended December 31, 2017.



	For the Quarter Ended December 31, 2017
Unvested Shares	Shares	Weighted-Average Award Date Fair Value
Unvested at September 30, 2017	109,000	$14.45
Granted	—	$—
Vested	—	$—
Forfeited	—	$—
Unvested at December 31, 2017	109,000	$14.45
Expected to vest at December 31, 2017	87,200	$14.45



	For the Six Months Ended December 31, 2017
Unvested Shares	Shares		Weighted-Average Award Date Fair Value
Unvested at June 30, 2017	111,000		$14.16
Granted	—		$—
Vested	—		$—
Forfeited	(2,000	)	$13.30
Unvested at December 31, 2017	109,000		$14.45
Expected to vest at December 31, 2017	87,200		$14.45

As of December 31, 2017 and 2016, the unrecognized compensation expense was $867,000 and $1.3 million, 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 1.3 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 six months of fiscal 2018 and 2017.

Stock Option Plan. The Corporation established the Stock Option Plan for key employees and eligible directors under which options to acquire up to 352,500 shares of common stock may be granted. Under the Stock Option Plan, 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 December 31, 2017, no stock options remain available for future grants under the Stock Option Plan, which expired in November 2013.

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 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 second quarter of fiscal 2018 and 2017, there was no activity in the Stock Option Plan. For the first six months of fiscal 2018 and 2017, there was no activity in the Stock Option Plan, except forfeitures of 50,000 shares and 12,500 shares, respectively. As of December 31, 2017 and 2016, there were no stock options available for future grants under the Stock Option Plan.

The following table summarizes the activity in the Stock Option Plan for the six months ended December 31, 2017.



	For the Six Months Ended December 31, 2017
Options	Shares		Weighted- Average Exercise Price	Weighted- Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value ($000)
Outstanding at June 30, 2017	50,000		$19.92
Granted	—		$—
Exercised	—		$—
Forfeited	(50,000	)	$19.92
Outstanding at December 31, 2017	—		$—	—	$—
Vested and expected to vest at December 31, 2017	—		$—	—	$—
Exercisable at December 31, 2017	—		$—	—	$—

As of December 31, 2017 and 2016, there was no unrecognized compensation expense at either date, related to unvested share-based compensation arrangements under the Stock Option Plan.