On April 23, 2021, the shareholders of CapStar Financial Holdings, Inc. approved the 2021 Stock Incentive Plan (the "Plan"). The Plan provides for the grant of stock-based incentives, including stock options, restricted stock units, performance awards and restricted stock, to employees, directors and service providers that are subject to forfeiture until vesting conditions have been satisfied by the award recipient under the terms of the award. The Plan is intended to help align the interests of employees and our shareholders and reward our employees for improved Company performance. A total of 1,168,543 shares of stock were reserved for issuance under the Plan. Stock incentives include both restricted share and stock option grants. Total shares issuable under the plan were 1,102,218 as of June 30, 2022.

The Company has recognized stock-based compensation expense, within salaries and employee benefits for employees, and within other noninterest expense for directors, in the consolidated statements of income as follows (in thousands):


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2022			2021			2022			2021
Stock-based compensation expense before income taxes	$	325		$	447		$	713		$	796
Less: deferred tax benefit		(85	)		(117	)		(186	)		(208	)
Reduction of net income	$	240		$	330		$	527		$	588

We grant time-vested restricted stock units and performance stock units to certain key employees and directors under our stock award plan. Compensation expense is recognized over the vesting period of the awards based on the fair value of the stock at the issue date. Awards vest ratably over a two or three-year vesting period depending on the specific award.

Performance stock units vest based upon the attainment of certain performance metrics over a three-year cumulative performance period. Certain of these awards are eligible to receive dividend equivalent shares. The grant date fair value of these awards was estimated using a Monte Carlo simulation. For awards based upon the achievement of the performance goals, the awards are earned ratably from 0% to 188%. If the performance goals are met at the end of the performance period, the award is adjusted to reflect the Company’s three-year total shareholder return (TSR) performance relative to a capital market peer group. This TSR modifier cannot cause the award to exceed the maximum of 188%.

The recipients have the right to vote and receive dividends but cannot sell, transfer, assign, pledge, hypothecate, or otherwise encumber the restricted stock until the shares have vested. A summary of the changes in the Company’s nonvested restricted shares for the six months ended June 30, 2022 follows:


				Weighted
				Average
	Restricted			Grant Date
Nonvested Shares	Shares			Fair Value
Nonvested at beginning of period		177,020		$	14.00
Granted		76,539			21.41
Vested		(27,836	)		16.10
Forfeited		(10,583	)		14.00
Nonvested at end of period		215,140		$	16.36

As of June 30, 2022, there was $2.2 million of unrecognized compensation cost related to nonvested shares granted under the Plan. The cost is expected to be recognized over a weighted-average period of 2.1 years. The total fair value of shares vested during the six months ended June 30, 2022 was $0.6 million.

Option awards are generally granted with an exercise price equal to the fair value of the Company’s common stock at the date of grant. Option awards generally have a three year vesting period and a ten year contractual term.

The fair value of each option grant is estimated on the date of grant using the Black Scholes option pricing model. There were no options granted in 2022 or 2021.

A summary of the activity in stock options for the six months ended June 30, 2022 follows:


						Weighted
				Weighted		Average
				Average		Remaining
				Exercise		Contractual
	Shares			Price		Term (years)
Outstanding at beginning of period		130,245		$	11.96
Granted		—			—
Exercised		(5,800	)		8.79
Forfeited or expired		—			—
Outstanding at end of period		124,445		$	12.11		4.5
Fully vested and expected to vest		124,445		$	12.11		4.5
Exercisable at end of period		124,445		$	12.11		4.5

Information related to stock options during each year follows:


	2022		2021
Intrinsic value of options exercised	$	71,340	$	748,558
Cash received from option exercises		50,982		1,025,496
Tax benefit realized from option exercises		18,648		148,312
Weighted average fair value of options granted		—		—

As of June 30, 2022, all compensation cost related to stock options granted under the Plan has been recognized.