12.EMPLOYEE BENEFIT PLANS

401(k) plan

The Bank provides a savings and retirement plan for employees, which qualifies under Section 401(k) of the Internal Revenue Code. All employees who have attained age 21 and have completed one year of employment during which they worked at least 1,000 hours are eligible to participate. The plan provides for voluntary contributions by participating employees ranging from 1% to 75% of their compensation, subject to certain limitations. In addition, the Bank will make a matching contribution, equal to 50% of the employee’s contribution. The Bank’s matching contribution will not exceed 3% of an employee’s salary. In addition, the Bank may make a discretionary contribution not to exceed 3% of an employee’s salary. For the years ended December 31, 2014 and 2013, expense attributable to the plan amounted to $148,000 and $145,000, respectively.

Incentive plan

The Bank has an Incentive Plan whereby all employees are eligible to receive a payment if the Bank or participant meets or exceeds certain base standards of performance for its fiscal year. The structure of the Incentive Plan is to be reviewed on an annual basis by the Board of Directors. Incentive compensation expense for the years ended December 31, 2014 and 2013 amounted to $196,000 and $174,000, respectively.

Executive supplemental retirement agreements

The Bank has entered into supplemental retirement agreements with certain executive officers, which provide for the payment of specified benefits upon retirement or early termination, as defined in the agreements. For the years ended December 31, 2014 and 2013, total expense applicable to these agreements amounted to $117,000 and $104,000, respectively.

Employee Stock Ownership Plan

The Bank established an ESOP for the benefit of each employee who has reached the age of 21 and has completed at least one year of employment with the Bank. Benefits may be paid in shares of common stock or in cash, subject to the employees’ right to demand shares.

The ESOP has a loan agreement with the Company whereby $1,237,000 was borrowed for the purpose of purchasing shares of the Company’s common stock. At December 31, 2014, the loan has 12 remaining annual principal and interest payments of $104,000, all of which are due on the last business day of the respective year. The loan documents provide that the loan may be repaid over a shorter period, without penalty for prepayments.

The remaining principal balance on the ESOP debt at December 31, 2014, is payable as follows:

Years Ending
December 31,	Amount
	(In thousands)

2015	$	71
2016	73
2017	75
2018	78
2019	80
Thereafter	641

	$	1,018

The Bank has committed to make contributions to the ESOP sufficient to support the debt service of the loan. The loan is secured by the shares purchased, which are held in a suspense account for allocation among the participants as the loan is paid. Total compensation expense applicable to the ESOP amounted to $114,000 and $101,000 for the years ended December 31, 2014 and 2013, respectively.

Shares held by the ESOP are as follows:

	At December 31,
	2014		2013

Allocated	66,829		58,646
Committed to be allocated	7,240		7,241
Unallocated	86,886		94,126
Paid out to participants	(17,572	)	(16,515	)

Total shares held by ESOP	143,383		143,498

Any cash dividends received on allocated shares would be used to purchase additional shares and then allocated to participants and cash dividends received on shares held in suspense would be used to reduce the Bank’s annual contribution to the ESOP. The fair value of unallocated ESOP shares at December 31, 2014 and 2013 is $1,429,000 and $1,497,000, respectively.

Share-based compensation plan

In accordance with the Company’s 2009 Equity Incentive Plan, the Company awarded 22,000 stock options and 22,000 shares of restricted stock to eligible participants on February 22, 2014. The 2009 Plan provides for total awards of 180,035 shares of the Company’s common stock pursuant to grants of restricted stock awards, incentive stock options, non-qualified stock options and stock appreciation rights; provided, however, that shares of stock used to fund stock options greater than 98,000 shares must be obtained through stock repurchases and shares of stock used to fund restricted stock awards greater than 39,200 shares must be obtained through stock repurchases.

In May 2014, stockholders of the Company approved the 2014 Equity Incentive Plan, which provides for total awards of 154,000 shares of the Company’s common stock pursuant to grants of restricted stock awards, restricted stock unit awards, performance awards, incentive stock options and non-qualified stock options; provided, however, that no more than 44,000 shares of stock may be issued as restricted stock awards and restricted stock units, and 110,000 shares may be issued or delivered in the aggregate pursuant to the exercise of stock options. There were no awards made from the 2014 Plan during the year ended December 31, 2014.

The exercise price of each option will be equal to or greater than the market price of the Company’s stock on the date of grant and the maximum term of each option is ten years. Vesting periods for options and restricted stock granted to directors and officers are three years and five years, respectively, from the date of grant.

The fair value of the stock options granted was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:

	2014		2013

Expected dividends	1.07	%	1.25	%
Expected term	6.4 years		6.4 years
Expected volatility	37.12	%	39.99	%
Risk-free interest rate	2.00	%	1.37	%

The expected volatility is based on historical volatility. The risk-free interest rates for periods consistent with the expected term of the awards are based on the U.S. Treasury yield curve in effect at the time of the grant. The expected term is determined using the average of the mathematical mean of the vesting period and the full term of the option rather than estimating based on historical experience. The dividend yield assumption is based on the Company’s history, expectation of future dividend payouts and market value at the date of grant.

The following tables present the activity for the 2009 Plan as of and for the years ended December 31, 2014 and 2013:

	Stock Options
	2014					2013
	Number of Shares			Weighted Average Exercise Price		Number of Shares			Weighted Average Exercise Price

Outstanding at beginning of year	52,924			$	11.12	40,681			$	9.49
Granted	22,000			$	14.98	22,000			$	14.00
Exercised	(3,813		)	$	10.39	—			$	—
Cancelled	—			$	—	(3,988		)	$	9.85
Forfeited	(9,430		)	$	13.82	(5,769		)	$	11.45

Outstanding at end of year	61,681			$	12.13	52,924			$	11.12

Exercisable at end of year	24,613					17,176

Weighted average fair value of options granted during the year	$	5.31				$	5.31

Options Outstanding				Options Exercisable
Number	Weighted-Average	Weighted		Number	Weighted
Outstanding	Remaining	Average		Exercisable	Average
as of 12/31/2014	Contractual Life	Exercise Price		as of 12/31/2014	Exercise Price

9,612	5.15 Years	$	9.33	8,459	$	9.33
10,551	6.15 Years	$	9.55	8,030	$	9.55
9,092	7.15 Years	$	9.58	4,513	$	9.58
15,316	8.15 Years	$	14.00	3,611	$	14.00
17,110	9.15 Years	$	14.98	—	$	—
61,681	7.47 Years	$	12.13	24,613	$	10.13

	Non-vested
	Restricted Stock
	2014				2013
	Number of Shares		Weighted Average Grant Date Value		Number of Shares		Weighted Average Grant Date Value

Outstanding at beginning of year	35,751		$	10.83	30,281		$	8.49
Granted	22,000		$	14.98	22,000		$	12.76
Vested	(12,074	)	$	10.39	(10,761	)	$	8.48
Forfeited	(8,606	)	$	13.34	(5,769	)	$	10.31

Outstanding at end of year	37,071		$	12.85	35,751		$	10.83

As of December 31, 2014, unrecognized share-based compensation expense related to non-vested options amounted to $143,000 and the unrecognized share-based compensation expense related to non-vested restricted stock amounted to $369,000. Both amounts are expected to be recognized over a weighted average period of 3.1 years.

For the year ended December 31, 2014, the Company recognized compensation expense for stock options of $47,000 with a related tax benefit of $7,000. For the year ended December 31, 2014, the Company recognized compensation expense for restricted stock awards of $132,000, with a related tax benefit of $53,000. For the year ended December 31, 2013, the Company recognized compensation expense for stock options of $53,000 with a related tax benefit of $9,000. For the year ended December 31, 2013, the Company recognized compensation expense for restricted stock awards of $118,000, with a related tax benefit of $47,000.