6. STOCK-BASED COMPENSATION

Equity Incentive Plan

The 2019 Equity Incentive Plan (“Plan”) was approved by the Company’s Board of Directors on January 16, 2019 and by its shareholders on March 6, 2019. The purpose of the Plan is to: (i) attract and retain the best available personnel for positions of substantial responsibility, (ii) provide additional incentive to employees, directors and consultants, and (iii) promote the success of the Company’s business. This Plan permits the grant of incentive stock options, nonstatutory stock options, stock appreciation rights, restricted stock, restricted stock units, performance units, performance shares, and other stock-based awards. The maximum aggregate number of shares of common stock that may be issued pursuant to all awards under the Plan is 2,300,000. The maximum aggregate number of shares that may be issued under the Plan may be increased annually by up to 3% of the total issued and outstanding common shares of the Company at the beginning of each fiscal year.

The fair value of each option award is estimated on the date of grant using a closed form option valuation (“Black-Scholes”) model that uses the assumptions noted in the table below. Expected volatilities are based on historical volatilities of the Company’s common stock and similar peer company averages. The Company uses historical data to estimate option exercise and post-vesting termination behavior. The expected term of options granted represents the period of time that options granted are expected to be outstanding, which takes in to account that the options are not transferable. The risk-free interest rate for the expected term of the option is based on U.S. Treasury yield curve in effect at the time of the grant.

Options

A summary of activity in the Plan during the six months ended June 30, 2020 is presented in the table below:

	Number of Shares			Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Life in Years		Aggregate Intrinsic Value
Six Months Ended June 30, 2020
Outstanding at beginning of year:		1,462,997		$	13.42
Granted		248,966			20.93
Exercised		(27,851	)		10.72
Forfeited		(20,151	)		17.86
Expired		—			—

Balance, June 30, 2020		1,663,961		$	14.54		6.21	$	3,040

Exercisable at end of period		1,058,090		$	12.04		5.43	$	3,040

Vested at end of period		1,058,090		$	12.04		5.43	$	3,040

A summary of assumptions used to calculate the fair values of the awards granted during the periods noted is presented below:

	Six Months Ended June 30,
	2020			2019
Expected volatility		27.46	%		28.64	%
Expected dividend yield		0.70	%		0.70	%
Expected term (years)	6.2 years			7.0 years
Risk-free interest rate		1.44	%		2.63	%
Weighted average grant date fair value	$	5.68		$	8.61

The total intrinsic value of options exercised during the six months ended June 30, 2020 was $185 thousand. There were no options exercised during the six months ended June 30, 2019.

On January 16, 2019, the Company approved the conversion of its previously issued stock appreciation rights (“SARs”) to stock options. There were 1,401,000 outstanding SARs that were converted effective as of May 6, 2019. The fair value of the SARs was $11.5 million at the conversion date. During the modification of these awards from liabilities to equity, the Company accelerated the expiration date, between two and four years, on 750,000 of the stock options. As a result, the fair value of the stock options after modification was $11.2 million. However, since the fair value of the new equity awards was less than the fair value of the liability awards, no adjustment was made to the Company’s income statement. The $11.5 million was reclassified from liabilities to equity upon conversion on May 6, 2019.

Restricted Stock Units

A summary of activity in the Plan is presented in the table below:

	Number of Shares			Weighted-Average Grant Date Fair Value
Six Months Ended June 30, 2020
Outstanding at beginning of year:		81,200		$	19.46
Granted		5,970			20.93
Vested		(24,694	)		19.79
Forfeited		—			—

Balance, June 30, 2020		62,476		$	19.47

Restricted stock units granted under the Plan typically vest over five years, but vesting periods may vary. Compensation expense for these grants will be recognized over the vesting period of the awards based on the fair value of the stock at the issue date.

The total unrecognized compensation cost for the awards outstanding under the Plan at June 30, 2020 was $3.7 million and will be recognized over a weighted average remaining period of 1.91 years. The total fair value of restricted stock units vested during the six months ended June 30, 2020 was $489,000. There was no vesting of restricted stock units during the six months ended June 30, 2019.