9. Equity

Preferred Stock. Historically, we had 2,000,000 shares of our 8.5% Series C Cumulative Convertible Preferred Stock (or Series C preferred stock) outstanding. Our Series C preferred stock was convertible into 2,000,000 shares of our common stock at $19.25 per share and dividends were payable quarterly. During the year ended December 31, 2015, the sole holder of our Series C Preferred stock elected to convert all of its preferred shares into 2,000,000 shares of common stock. Accordingly, we had no preferred stock outstanding as of December 31, 2016.

Common Stock. During 2015, we entered into an equity distribution agreement (or Original Agreement) to issue and sell, from time to time, up to $200,000,000 in aggregate offering price of our common shares. Sales of common shares will be made by means of ordinary brokers’ transactions, which may include block trades, or transactions that are deemed to be “at the market” offerings. During the twelve months ended December 31, 2016, we sold 1,643,017 shares of common stock for $78,600,000 in net proceeds under the Original Agreement. In conjunction with the sale of common stock, we reclassified $463,000 of accumulated costs associated with the Original Agreement to additional paid in capital. During 2015, we did not sell shares of common stock under the Original Agreement.

During 2016, we terminated the Original Agreement and entered into a new equity distribution agreement (or Equity Distribution Agreement) to issue and sell, from time to time, up to $200,000,000 in aggregate offering price of our company common shares. As of December 31, 2016, no shares were issued under the Equity Distribution Agreement. Accordingly, we had $200,000,000 available under this agreement. Subsequent to December 31, 2016, we sold 312,881 shares of common stock for $14,578,000 in net proceeds under our Equity Distribution Agreement. Accordingly, we have approximately $185,162,000 available under this agreement.

During 2016 and 2015, we acquired 49,405 shares and 26,993 shares, respectively, of common stock held by employees who tendered owned shares to satisfy tax withholding obligations. Subsequent to December 31, 2016, we acquired 23,691 shares of common stock held by employees who tendered owned shares to satisfy tax withholding obligations.

Available Shelf Registration. We had an automatic shelf registration statement which was filed in 2013 and provided us with the capacity to publicly offer up to $800,000,000 in common stock, preferred stock, warrants, debt, depositary shares, or units. In advance of the three-year expiration of the automatic shelf registration statement we filed in 2013, we filed a new automatic shelf registration statement with the SEC on January 29, 2016 to provide us with additional capacity to publicly offer an indeterminate amount of common stock, preferred stock, warrants, debt, depositary shares, or units. We may from time to time raise capital under the automatic registration statement we filed in 2016 (until its expiration on January 29, 2019) in amounts, at prices, and on terms to be announced when and if the securities are offered. The specifics of any future offerings, along with the use of proceeds of any securities offered, will be described in detail in a prospectus supplement, or other offering materials, at the time of the offering.

Distributions. We declared and paid the following cash dividends (in thousands):


	Year Ended
	December 31, 2016						December 31, 2015
	Declared			Paid			Declared			Paid
Preferred Stock Series C	$	—		$	—		$	2,454		$	2,454
Common Stock		84,568	(1)		84,568	(1)		74,311	(2)		74,311	(2)
Total	$	84,568		$	84,568		$	76,765		$	76,765

⁽¹⁾

Represents $0.18 per share per month for January through September 2016 and $0.19 per share per month for October through December 2016.

⁽²⁾

Represents $0.17 per share per month for January through September 2015 and $0.18 per share per month for October through December 2015.

In January 2017, we declared a monthly cash dividend of $0.19 per share on our common stock for the months of January, February and March 2017 payable on January 31, February 28 and March 31, 2017, respectively, to stockholders of record on January 23, February 17 and March 23, 2017, respectively.

Accumulated Other Comprehensive Income. During prior years, we had investments in Real Estate Mortgage Investment Conduit (or REMIC) Certificates, and retained the non‑investment grade certificates issued in the securitizations. During 2005, a loan was paid off in the last remaining REMIC pool which caused the last third party REMIC Certificate holders entitled to any principal payments to be paid off in full. After this transaction, we became the sole holder of the remaining REMIC Certificates and were therefore entitled to the entire principal outstanding of the loan pool underlying the remaining REMIC Certificates. Under the FASB accounting guidance relating to accounting for changes that result in a transferor regaining control of financial assets sold, a Special Purpose Entity (or SPE) may become non‑qualified or tainted which generally results in the “repurchase” by the transferor of all the assets sold to and still held by the SPE. Since we were the sole REMIC Certificate holder entitled to principal from the underlying loan pool, we had all the risks and were entitled to all the rewards from the underlying loan pool. As required by the accounting guidance, the repurchase for the transferred assets was accounted for at fair value. The accumulated other comprehensive income balance represents the fair market value adjustment offset by any previously adjusted impairment charge which is amortized to increase interest income over the remaining life of the loans that we repurchased from the REMIC pool. At December 31, 2016 and 2015, accumulated other comprehensive income was $0 and $47,000, respectively.

Stock Based Compensation Plans. During 2015, we adopted and our shareholders approved the 2015 Equity Participation Plan (or the 2015 Plan) which replaces the 2008 Equity Participation Plan (or the 2008 Plan). Under the 2015 Plan, 1,400,000 shares of common stock have been reserved for awards, including nonqualified stock option grants and restricted stock grants to officers, employees, non-employee directors and consultants. The terms of the awards granted under the 2015 Plan are set by our compensation committee at its discretion. During the twelve months ended December 31, 2016, no stock options were granted under this plan. During 2016, 127,087 shares of restricted stock were granted under the 2015 Plan. Subsequent to December 31, 2016, we granted 74,760 shares of restricted common stock at $45.76 per share. These shares vest ratably from the grant date over a three-year period.

Restricted Stock and performance-based stock units. Restricted stock and performance based stock units activity for the years ended December 31, 2016 and 2015 was as follows:


	2016		2015
Outstanding, January 1		187,347		214,168
Granted		127,087		92,150
Vested		(103,861)		(118,331)
Canceled		—		(640)
Outstanding, December 31		210,573		187,347

Compensation expense related to restricted stock and performance based stock units for the year	$	4,265,000	$	3,992,000

During 2016 and 2015, we granted 127,087 and 92,150 shares of restricted common stock, respectively, under the 2015 plan and 2008 Plan as follows:


		Price per
Year	No. of Shares/Units	Share		Vesting Period
2016	65,300	$	43.24	ratably over 3 years
	54,107	$	46.87	TSR targets (1)
	7,680	$	46.87	June 1, 2017
	127,087

2015	65,750	$	44.45	ratably over 3 years
	18,000	$	42.30	ratably over 3 years
	8,400	$	42.30	June 2, 2016
	92,150

(1)

Vesting is based on achieving certain total shareholder return (or TSR) targets in 3.7 years with acceleration opportunity in 2.7 years.

At December 31, 2016, the total number of restricted common stock and performance-based stock units that are scheduled to vest and remaining compensation expense to be recognized related to the future service period of unvested outstanding restricted common stock and performance-based stock units are as follows:


	Number		Remaining
	of		Compensation
Vesting Date	Awards		Expense
2017	85,343			3,428,000
2018	49,352			2,071,000
2019	75,878	(1)		236,000
	210,573		$	5,735,000

(1)

Includes 54,107 performance-based stock units. The performance based stock units are valued utilizing a lattice-binomial option pricing model based on Monte Carlo simulations. The company recognizes the fair value of the awards over the applicable vesting period as compensation expense.

Stock Options. During 2016 and 2015, we did not issue any stock options. Nonqualified stock option activity for the years ended December 31, 2016 and 2015, was as follows:


			Weighted Average
	Shares		Price
	2016	2015	2016		2015
Outstanding, January 1	40,001	43,334	$	29.60	$	29.16
Granted	—	—	$	—	$	—
Exercised	(6,667)	(3,333)	$	23.79	$	23.79
Canceled	—	—	$	—	$	—
Outstanding, December 31	33,334	40,001	$	30.76	$	29.60
Exercisable, December 31(1)	28,334	30,001	$	45.45	$	31.99

⁽¹⁾

The aggregate intrinsic value of exercisable options at December 31, 2016, based upon the closing price of our common shares at December 30, 2016, the last trading day of 2016, was approximately $498,000. Options exercisable at December 31, 2016 have a weighted average remaining contractual life of approximately 2.9 years.

The options exercised during 2016 and 2015 were as follows:


		Weighted
		Average
	Options	Exercise		Option		Market
	Exercised	Price		Value		Value(1)
2016	6,667	$	23.79	$	159,000	$	311,000
2015	3,333	$	23.79	$	79,000	$	140,000

⁽¹⁾

As of the exercise dates.

We use the Black‑Scholes‑Merton formula to estimate the value of stock options granted to employees. This model requires management to make certain estimates including stock volatility, expected dividend yield and the expected term. The weighted average exercise share price of the options was $30.76 and $29.60 and the weighted average remaining contractual life was 2.9 and 2.6 years as of December 31, 2016 and 2015, respectively. Compensation expense related to the vesting of stock options for the twelve months ended December 31, 2016, was $15,000 compared to $14,000 for the same period in 2015.

We have no stock options outstanding that are scheduled to vest beyond 2017. At December 31, 2016, the total number of stock options outstanding that are scheduled to vest through 2017 is 5,000. The remaining compensation expense to be recognized related to the future service period of unvested outstanding stock options for 2017 is $3,000.