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STOCK BASED COMPENSATION PLANS

In December 2009, the Company adopted the 2010 Equity Incentive Plan (“Plan”), which the Company’s shareholders approved in February 2010. The Plan provides for the award of stock options, restricted shares and performance shares. The aggregate number of shares of the Company’s common stock available for issuance under the Plan may not exceed 355,885 shares. The Company may grant both non-statutory and statutory (i.e., incentive) stock options that may not have a term exceeding ten years. An award of a performance share is a grant of a right to receive shares of the Company’s common stock contingent upon the achievement of specific performance criteria or other objectives set at the grant date. Awards granted under the Plan may be granted either alone, in addition to, or in tandem with any other award granted under the Plan. The terms of the Plan include a provision whereby all unearned options and shares become immediately exercisable and fully vested upon a change in control.

In April 2010, the Company funded a trust, administered by an independent trustee, which acquired 101,681 common shares in the open market at a price per share of $13.60 for a total cost of $1.4 million. These acquired common shares were granted to directors, officers and key employees in the form of restricted stock in May 2010 at a price per share of $13.25 for a total of $1.3 million. The difference between the purchase price and grant price of the common shares issued as restricted stock, totaling $41,000, was recognized by the Company as a reduction of additional paid in capital. The vesting period of the restricted stock is five years beginning one year after the date of grant of the awards. Compensation expense is measured based on the fair market value of the restricted stock at the grant date and is recognized ratably over the period during which the shares are earned (the vesting period). Compensation expense related to restricted stock recognized for the years ended September 30, 2015 and 2014 amounted to $162,000 and $260,000, respectively. A summary of the Company’s nonvested restricted shares for the year ended September 30, 2015 is as follows:

			Weighted
	Number		Average
	of		Grant-Date
	Shares		Fair Value

Nonvested at beginning of year		19,610	$	13.25
Granted		-		-
Vested		(19,610)		13.25
Forfeited		-		-

Nonvested at end of year		-		-

There were no restricted shares granted during the years ended September 30, 2015 and 2014. The total fair value of restricted shares that vested during the years ended September 30, 2015 and 2014 was $575,000 and $479,000, respectively. At September 30, 2015, there was no unrecognized compensation expense related to nonvested restricted shares.

In May 2010, the Company awarded 177,549 incentive and 76,655 non-statutory stock options to directors, officers and key employees. The options granted vest ratably over five years and are exercisable in whole or in part for a period up to ten years from the date of the grant. Compensation expense is measured based on the fair market value of the options at the grant date and is recognized ratably over the period during which the shares are earned (the vesting period). The fair market value of stock options granted was estimated at the date of grant using the Binomial option pricing model. Expected volatilities are based on historical volatility of the Company’s stock and that of peer institutions located in its geographic market area. The expected term of options granted represents the period of time that options are expected to be outstanding. The risk free rate for the expected life of the options is based on the U.S. Treasury yield curve in effect at the grant date.

The fair value of options granted was determined using the following assumptions:

Expected dividend yield		4.53	%
Risk-free interest rate		2.82	%
Expected volatility		30.00	%
Expected life of options		7.0 years
Weighted average fair value at grant date	$	3.09

A summary of stock option activity under the plan as of September 30, 2015, and changes during the year then ended is presented below.

					Weighted
			Weighted		Average
	Number		Average		Remaining		Aggregate
	of		Exercise		Contractual		Intrinsic
	Shares		Price		Term		Value

Outstanding at beginning of year		234,232	$	13.25		5.6	$	2,743,000
Granted		-		-
Exercised		(20,972)	$	13.25			$	250,000
Forfeited or expired		-		-

Outstanding at end of year		213,260	$	13.25		4.6	$	4,425,000

Exercisable at end of year		213,260	$	13.25		4.6	$	4,425,000

There were no stock options granted during the years ended September 30, 2015 and 2014. The Company recognized compensation expense related to stock options for the years ended September 30, 2015 and 2014 of $95,000 and $152,000, respectively. At September 30, 2015, there was no unrecognized compensation expense related to nonvested stock options.