8. Stockholders' Equity

9 Months Ended

Sep. 30, 2014

Notes to Financial Statements

8. Stockholders' Equity

Dividend Declared

Dividends declared and paid on Common Stock were $947,186 and $459,738 for the nine months ended September 30, 2014 and 2013, respectively. Dividends declared and paid on Common Stock were $364,747 and $152,464 for the three months ended September 30, 2014 and 2013, respectively. The Company’s Board of Directors approved a quarterly dividend on November 12, 2014 of $.05 per share payable in cash on December 12, 2014 to stockholders of record as of November 28, 2014 (see Note 13).

Stock Options

Pursuant to the Company’s 2005 Equity Participation Plan (the “2005 Plan”), which provides for the issuance of incentive stock options, non-statutory stock options and restricted stock, a maximum of 700,000 shares of the Company’s Common Stock are permitted to be issued pursuant to options granted and restricted stock issued. Effective August 12, 2014, the Company adopted the 2014 Equity Participation Plan (the “2014 Plan”) pursuant to which, subject to shareholder approval on or before August 12, 2015 a maximum of 700,000 shares of common stock of the Company are authorized to be issued pursuant to the grant of incentive stock options, non-statutory stock options, stock appreciation rights, restricted stock and stock bonuses. Incentive stock options granted under the 2014 Plan and 2005 Plan expire no later than ten years from the date of grant (except no later than five years for a grant to a 10% stockholder). The Board of Directors or the Stock Option Committee determines the expiration date with respect to non-statutory stock options and the vesting provisions for restricted stock granted under the 2014 Plan and 2005 Plan.

The results of operations for the nine months ended September 30, 2014 and 2013 include stock-based compensation expense totaling approximately $119,000 and $40,000, respectively. The results of operations for the three months ended September 30, 2014 and 2013 include stock-based compensation expense totaling approximately $92,000 and $27,000, respectively. Stock-based compensation expense related to stock options is net of estimated forfeitures of 20% for the nine months and three months ended September 30, 2014 and 21% for the nine months and three months ended September 30, 2013. Such amounts have been included in the condensed consolidated statements of income and comprehensive income within other operating expenses.

Stock-based compensation expense in 2014 and 2013 is the grant date estimated fair value of options amortized on a straight-line basis over the requisite service period for the entire portion of the award. The weighted average estimated fair value of stock options granted during the nine months ended September 30, 2014 and 2013 was $1.60 per share and $1.38 per share, respectively. The fair value of stock options at the grant date was estimated using the Black-Scholes option-pricing model. The following weighted average assumptions were used for grants during the nine months ended September 30, 2014 and 2013:

	2014			2013
Dividend Yield		2.97	%		3.14	%
Volatility		46.53	%		46.71	%
Risk-Free Interest Rate		.92	%		.79	%
Expected Life	3.25 years			3.25 years

The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options, which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because our stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of our stock options.

A summary of option activity under the Company’s 2005 Plan for the nine months ended September 30, 2014 is as follows:

Stock Options	Number of Shares			Weighted Average Exercise Price per Share		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value
Outstanding at January 1, 2014		321,365		$	3.36		2.26	$	1,257,936
Granted (1)		200,000		$	6.73		-	$	272,000
Exercised		(70,115	)	$	2.48		-	$	296,992
Forfeited		-		$	-		-	$	-
Outstanding at September 30, 2014 (1)		451,250		$	4.99		3.19	$	1,400,438
Vested and Exercisable at September 30, 2014		241,250		$	3.83		1.95	$	1,026,900

(1)   On August 12, 2014, an additional 50,000 options were granted under the 2014 Plan, which is subject to shareholder approval.

The aggregate intrinsic value of options outstanding and options exercisable at September 30, 2014 is calculated as the difference between the exercise price of the underlying options and the market price of the Company’s Common Stock for the options that had exercise prices that were lower than the $8.09 closing price of the Company’s Common Stock on September 30, 2014.

Participants in the 2014 Plan and 2005 Plan may exercise their outstanding vested options, in whole or in part, by having the Company reduce the number of shares otherwise issuable by a number of shares having a fair market value equal to the exercise price of the option being exercised (“Net Exercise”). A total of 70,115 options and 1,250 options were exercised during the nine months ended September 30, 2014 and 2013, respectively.

As of September 30, 2014, the fair value of unamortized compensation cost related to unvested stock option awards was approximately $212,000. Unamortized compensation cost as of September 30, 2014 is expected to be recognized over a remaining weighted-average vesting period of 1.48 years.