8. Stockholders' Equity

9 Months Ended

Sep. 30, 2015

Notes to Financial Statements

8. Stockholders' Equity

Dividend Declared

Dividends declared and paid on Common Stock were $1,098,946 and $947,186 for the nine months ended September 30, 2015 and 2014, respectively. Dividends declared and paid on Common Stock were $366,756 and $364,747 for the three months ended September 30, 2015 and 2014, respectively. The Company’s Board of Directors approved a quarterly dividend on November 10, 2015 of $.0625 per share payable in cash on December 14, 2015 to stockholders of record as of November 30, 2015 (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 stockholder 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. The stockholders approved the 2014 Plan on August 11, 2015. 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, 2015 and 2014 include stock-based stock option compensation expense totaling approximately $130,000 and $119,000, respectively. The results of operations for the three months ended September 30, 2015 and 2014 include stock-based stock option compensation expense totaling approximately $52,000 and $92,000, respectively. Stock-based compensation expense related to stock options is net of estimated forfeitures of 17% for the nine months and three months ended September 30, 2015 and 20% for the nine months and three months ended September 30, 2014. Such amounts have been included in the condensed consolidated statements of income and comprehensive income within other operating expenses.

Stock-based compensation expense in 2015 and 2014 is the estimated fair value of options granted 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 three and nine months ended September 30, 2015 and 2014 was $1.87 and $1.60 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 following periods:

	Three months ended		Nine months ended
	September 30,		September 30,
	2015	2014	2015	2014
Dividend Yield	2.62%	2.97%	2.62%	2.97%
Volatility	34.54%	40.53%	35.54%	40.53%
Risk-Free Interest Rate	1.03%	0.92%	1.03%	0.92%
Expected Life	3.0 years	3.25 years	3.0 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 stock option activity under the Company’s 2005 and 2014 Plans for the nine months ended September 30, 2015 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, 2015	421,250	$               5.16	3.13	$    1,258,013
Granted (1)	50,000	$               6.73		$         95,500
Exercised	(123,750)	$               2.58		$       662,488
Forfeited	(2,500)	$               5.09
Outstanding at September 30, 2015	345,000	$               6.32	3.60	$       801,075
Vested and Exercisable at September 30, 2015	186,875	$               6.22	3.55	$       451,706

(1) On August 12, 2014, 50,000 options were awarded under the 2014 Plan, which were subject to stockholder approval. The options were granted upon the stockholders’ approval of the 2014 Plan on August 11, 2015.

The aggregate intrinsic value of options outstanding and options exercisable at September 30, 2015 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 $8.64 closing price of the Company’s Common Stock on September 30, 2015. The total intrinsic value of options exercised in the nine months ended September 30, 2015 was $662,488, determined as of the date of exercise.

Participants in the 2005 and 2014 Plans 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”). All of the 123,750 options exercised during the nine months ended September 30, 2015 were Net Exercises. A total of 70,115 options were exercised during the nine months ended September 30, 2014.

As of September 30, 2015, the fair value of unamortized compensation cost related to unvested stock option awards was approximately $126,000. Unamortized compensation cost as of September 30, 2015 is expected to be recognized over a remaining weighted-average vesting period of 1.25 years.

As of September 30, 2015, there were 1,135 shares reserved for grants under the 2005 Plan and 650,000 shares reserved for grants under the 2014 Plan.