STOCK BASED COMPENSATION PLANS

9 Months Ended

Sep. 30, 2014

STOCK BASED COMPENSATION PLANS

STOCK BASED COMPENSATION PLANS

9. STOCK-BASED COMPENSATION PLANS

        As of the Acquisition Date, we had 19,700 options outstanding under stock-based compensation plans. The options are fully vested, and were repriced as of the Acquisition Date. Of these options, 14,500 were exercised during the nine months ended September 30, 2014 for proceeds of approximately $201,000.

        We granted 11,850 options on June 12, 2014 at an exercise price of $23.16 (the closing price of our Common Stock on such date). The fair value of these options was estimated at the date of grant using the Black-Scholes option- pricing model with the following assumptions:

Assumptions
Expected term (years)	3.0
Risk-free interest rate	0.94	%
Expected dividend yield	3.78	%
Expected volatility	9.37	%
Expected forfeiture rate	1.0	%

        The expected term of the options granted represents the period of time that the options are expected to be outstanding and was based on historical data. The risk-free rate was based on the three-year U.S. Treasury rate corresponding to the expected term of the options. We used historical information to determine our expected volatility and forfeiture rate. We recorded compensation expense of $0 and $8,000 during the three and nine months ended September 30, 2014, respectively, related to this option grant.

        On April 28, 2014, our stockholders approved the First Amendment to the PMC Commercial Trust 2005 Equity Incentive Plan (the "Plan Amendment") to increase the aggregate number of shares of Common Stock thereunder from 100,000 to 300,000 shares and increase the annual limitation on restricted Common Stock grants to all independent directors in the aggregate to 100,000 restricted shares of Common Stock and to each executive officer to no more than 4,000 restricted shares of Common Stock during any fiscal year. On March 11, 2014, we granted Common Stock awards of 2,000 restricted shares of Common Stock to each of the independent members of the board of directors (the "Board of Directors") (6,000 in aggregate) which awards were effective upon the receipt of stockholder approval of the Plan Amendment. The shares of Common Stock vest based on a year of continuous service. Compensation expense related to these restricted shares of Common Stock is being recognized over the vesting period. We recorded compensation expense of $32,000 and $63,000 during the three and nine months ended September 30, 2014, respectively, related to these restricted shares of Common Stock.

        We issued an aggregate of 2,000 restricted shares of Common Stock to two of our executive officers on May 6, 2014. The restricted shares of Common Stock vest based on two years of continuous service with one-third of the shares of Common Stock vesting immediately upon issuance and one-third vesting at the end of each of the next two years. Compensation expense related to these restricted shares of Common Stock is being recognized over the vesting period. We recognized compensation expense of $5,000 and $24,000 during the three and nine months ended September 30, 2014, respectively, related to these restricted shares of Common Stock.

        In accordance with the employment agreements of two of our executive officers, to the extent the executive is employed by us on January 1, 2016 and such executive is not entitled to any disability, death or severance payments, the executive would be awarded restricted shares of Common Stock as a retention bonus which would vest immediately upon issuance. In aggregate, the executive officers would receive 105,000 Common Stock awards. We recorded compensation expense of $316,000 and $631,000 during the three and nine months ended September 30, 2014, respectively, related to these Common Stock awards.

        As of September 30, 2014, there was $1,664,000 of total unrecognized compensation expense related to shares of Common Stock which will be recognized over the next fifteen months.