7. Stockholders' Equity

3 Months Ended

Mar. 31, 2016

Notes to Financial Statements

7. Stockholders' Equity

Dividend Declared

Dividends declared and paid on Common Stock were $457,603 and $365,505 for the three months ended March 31, 2016 and 2015, respectively. The Company’s Board of Directors approved a quarterly dividend on May 11, 2016 of $.0625 per share payable in cash on June 15, 2016 to stockholders of record as of May 31, 2016 (see Note 12).

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 three months ended March 31, 2016 and 2015 include stock-based stock option compensation expense totaling approximately $32,000 and $39,000, respectively. Stock-based compensation expense related to stock options for the three months ended March 31, 2016 and 2015 is net of estimated forfeitures of 17% for both periods. Such amounts have been included in the condensed consolidated statements of income and comprehensive income within other operating expenses.

Stock-based compensation expense in 2016 and 2015 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 less an estimate for anticipated forfeitures. The Company uses the “simplified” method to estimate the expected term of the options because the Company’s historical share option exercise experience does not provide a reasonable basis upon which to estimate expected term. The weighted average estimated fair value of stock options granted during the three months ended March 31, 2016 was $1.97 per share. No options were granted during the three months March 31, 2015. 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
	March 31,
	2016			2015
Dividend Yield		3.18	%		na
Volatility		31.61	%		na
Risk-Free Interest Rate		1.11	%		na
Expected Life		3.25 years			na

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 2014 Plan for the three months ended March 31, 2016 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, 2016		339,750	$	6.34		3.36	$	904,775
Granted		25,000	$	7.85			$	10,250
Exercised		—	$	—			$	—
Forfeited		—	$	—			$	—
Outstanding at March 31, 2016		364,750	$	6.44		3.24	$	663,610
Vested and Exercisable at March 31, 2016		197,875	$	6.26		3.12	$	394,854

The aggregate intrinsic value of options outstanding and options exercisable at March 31, 2016 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 $8.26 closing price of the Company’s Common Stock on March 31, 2016. No options were exercised during the three months ended March 31, 2016.

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 120,000 options exercised during the three months ended March 31, 2015 were Net Exercises.

As of March 31, 2016, the fair value of unamortized compensation cost related to unvested stock option awards was approximately $98,000. Unamortized compensation cost as of March 31, 2016 is expected to be recognized over a remaining weighted-average vesting period of 1.51 years.

As of March 31, 2016, there were 625,000 shares reserved for grants under the 2014 Plan.

Other Equity Compensation

On January 4, 2016, the Company granted a total of 6,000 shares of restricted common stock under the 2014 Plan to its three then non-employee directors. On March 29, 2016, the Company granted 1,500 shares of restricted common stock under the 2014 Plan to a newly elected non-employee director. One-third of the shares granted will vest on each of the three following anniversaries following the grant date. The fair value of the shares will be determined on each of the vesting dates. For the three months ended March 31, 2016, no stock-based compensation for these grants is included in the condensed consolidated statements of income and comprehensive income. 

Private Placement

See Note 12 Subsequent Events.