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 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, 2013, options for 157,338 shares were available for future grant under the 2003 Stock Option Plan and no shares were available for future grant under the 1999 Stock Option Plan.

In October 2013, the Board approved grants to employees and directors of options to purchase 106,000 shares of common stock.

Stock option activity for the years ended September 30, 2013, 2012 and 2011 is summarized as follows:



	Number of Shares		Weighted Average Exercise Price
Outstanding September 30, 2010	194,864		$	8.71
Options forfeited	(57,138	)	7.42
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

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 no options granted during the year ended September 30, 2011. 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. The weighted average assumptions for options granted during the years ended September 30, 2013 and 2012 were as follows:



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

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. There were 5,200 options that vested during the year ended September 30, 2011 with a total fair value of $7,000.

At September 30, 2013 there were 91,000 unvested options with an aggregate grant date fair value of $189,000, all of which the Company assumes will vest. The unvested options had an aggregate intrinsic value of $330,000 at September 30, 2013. At September 30, 2012 there were 79,300 unvested options with an aggregate grant date fair value of $152,000.

There were no options exercised during the years ended September 30, 2013, 2012 or 2011.

Additional information regarding options outstanding at September 30, 2013, 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	46,900	$	4.25	7.2	18,900	$	4.40	6.7
5.86 - 6.00	71,500	5.92		9.0	8,500	5.86		9.0
11.46 - 11.63	44,546	11.50		0.3	44,546	11.50		0.3
	162,946	$	6.96	6.1	71,946	$	8.97	2.9

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. There was no aggregate intrinsic value of options outstanding at September 30, 2011, as the exercise price of all options outstanding was greater than the stock’s current market value.

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 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 is 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, 2013, there were no shares available for future awards under the MRDP. There were no MRDP shares granted during the years ended September 30, 2013, 2012 or 2011.

A summary of MRDP shares vested for the years ended September 30, 2013, 2012 and 2011 were as follows:



	2013		2012		2011
Shares vested	6,207		10,831		13,435
Aggregate vesting date fair value	$	38,000	$	46,000	$	61,000

A summary of unvested MRDP shares as of September 30, 2013 and changes during the year ended September 30, 2013, were as follows:



	Shares	Weighted Average Grant Date Fair Value
Unvested shares, beginning of period	9,461	$	9.00
Shares vested	6,207	10.04

Unvested shares, end of period	3,254	$	7.01

At September 30, 2013, there were 3,254 unvested MRDP shares with an aggregate grant date fair value of $23,000.

Expense for Stock Compensation Plans

Compensation expense recorded in the consolidated financial statements for all stock-based plans were as follows for the years ended September 30, 2013, 2012 and 2011 (dollars in thousands):



	2013			2012			2011
Stock options	$	49		$	15		$	7
MRDP stock grants	39			105			171
Less: related tax benefit recognized	(8		)	(28		)	(37		)
	$	80		$	92		$	141

The compensation expense to be recognized in the future for stock-based awards that had been awarded as of September 30, 2013 but not vested for the years ending September 30, is as follows (in thousands):



	Stock Options		Stock Grants (MRDP)		Total Awards
2014	$	51	$	2	$	53
2015	44		—		44
2016	44		—		44
2017	35		—		35
2018	1		—		1
	$	175	$	2	$	177