STOCK-BASED COMPENSATION

The Company has a stock-based incentive plan (the “2016 Plan”) to award equity as a form of compensation. The 2016 Plan, was approved by the Company’s stockholders on September 1, 2016. The 2016 Plan provides for grants of stock options, stock appreciation rights (“SARs”), restricted stock, performance shares, and performance units (sometimes referred to individually or collectively as “awards”) to non-employee directors, employees, and consultants of the Company. Stock options may be either incentive stock options (“ISOs”), as defined in Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”), or nonqualified stock options (“NQSOs”).

The 2016 Plan gives the Company flexibility to (i) attract and retain qualified non-employee directors, executives, other key employees, and consultants with appropriate equity-based awards to; (ii) motivate high levels of performance; (iii) recognize employee contributions to the Company’s success; and (iv) align the interests of the 2016 Plan participants with those of the Company’s stockholders. The plan initially had 2,400,000 shares available for grant to participants. The exercise price for shares under an ISO may not be less than 100% of fair market value on the date the award is granted under Code Section 422. Similarly, under the terms of the 2016 Plan, the exercise price for SARs and NQSOs may not be less than 100% of fair market value on the date of grant. Performance units are awarded to a participant at the market price of the Company’s common stock on the date of award (after the lapse of the restriction period and the attainment of the performance criteria). No minimum exercise price is prescribed for performance shares and restricted stock awarded under the 2016 Plan. All options not exercised generally expire 10 years after the date of grant.

ISOs, SARs and NQSOs have vesting periods of three to five years and have 10-year contractual terms. Restricted stock, performance shares, and performance units will be granted with a restriction period of not less than one year from the grant date for performance-based awards and not more than three years from the grant date for time-based vesting of grants. Compensation expense for awards is recorded over the vesting period. The grant date fair value of stock option awards are estimated on the date of grant using the Black-Scholes option valuation model. The expected life (estimated period of time outstanding) of options is estimated using the simplified method. The expected volatility is based on historical volatility for a period equal to the stock option’s expected life. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant.

The Company had another stock-based incentive plan, the 2007 Equity Incentive Plan (“2007 Plan”), which was approved by stockholders in May 2007. Under the terms of this plan, awards cannot be granted under the plan more than ten years after the plan adoption date. Therefore, subsequent to May 2017, equity awards can no longer be issued from this plan.

The 2016 plan has 1,111,396 shares available for future grants as of December 31, 2018.

The total shares reserved for issuance will serve as the underlying value for all equity awards under the 2016 Plan. With the exception of the shares underlying stock options and restricted stock awards, the board of directors may choose to settle the awards by paying the equivalent cash value or awarding the appropriate number of shares. For the year ended December 31, 2018, 277,725 shares of restricted and performance unit awards were granted under the 2016 Plan. The fair value of performance unit awards granted is the fair market value of the Company’s common stock on the date of grant. In 2018 and 2017, there were no stock options granted during the year and in 2016 there were 1,281,552, options were granted.

The following is a summary of stock option activity under the 2016 Plan for the year ended December 31, 2018:



	Number of Shares		Weighted- Average Exercise Price Per Share		Weighted- Average Remaining Contractual Life (Years)	Aggregate Intrinsic Value
Outstanding - January 1, 2018	1,075,423		$	15.06
Granted	—		—
Exercised	(57,198	)	7.88			$	576,396
Expired	(11,594	)	16.11
Forfeited	(24,000	)	17.18
Outstanding - December 31, 2018	982,631		$	15.41	6.48	$	720,633
Options exercisable - December 31, 2018	777,621		$	15.01	6.21	$	720,633

For stock options exercised during the year ended December 31, 2018, the Company received cash totaling $451 thousand and the related tax benefit from the stock option exercises totaled $944 thousand.

The following is a summary of restricted and performance unit activity under the 2016 Plan for the year ended December 31, 2018:



	Number of Shares		Weighted- Average Grant Date Fair Value
Outstanding - January 1, 2018	379,419		$	16.50
Granted	277,725		16.25
Vested	(152,887	)	16.48
Forfeited	(25,366	)	16.43
Outstanding - December 31, 2018	478,891		$	16.37

The total fair value of restricted and performance units vested for the year ended December 31, 2018, 2017, and 2016 was $2.7 million, $2.7 million, and $1.9 million respectively.

The amount charged against income related to stock based payment arrangements was $3.7 million, $3.2 million, and $3.0 million for the years ended December 31, 2018, 2017 and 2016, respectively.

At December 31, 2018, unrecognized compensation expense related to non-vested stock option grants and restricted and performance units aggregated $13.3 million and is expected to be recognized over a remaining weighted average vesting period of 2.5 years.

The estimated annual stock-based compensation expense as of December 31, 2018 for each of the succeeding years is indicated in the table below:



	Stock Based Compensation Expense
	(Dollars in thousands)
For the year ended December 31:
2019	$	5,605
2020	5,929
2021	1,569
2022	175
2023	59
Total	$	13,337

On August 21, 2017, the Company adopted the Hope Employee Stock Purchase Plan (“ESPP”). The ESPP allows eligible employees to purchase the Company’s common shares through payroll deductions which build up between the offering date and the purchase date. At the purchase date, the Company uses the accumulated funds to purchase shares in the Company on behalf of the participating employees at a 10% discount from the closing price of the Company’s common shares. The closing price is the lower of either the closing price on the first day of the offering period or on the closing price on the purchase date. The dollar amount of common shares purchased under the ESPP must not exceed 20% of the participating employee’s base salary, subject to a cap of $25 thousand in stock value based on the grant date. The ESPP is considered compensatory under GAAP and compensation expense for the ESPP is recognized as part of the Company’s stock based compensation expenses. The compensation expense for ESPP for the year ended December 31, 2018 was $165 thousand. The Company did not have any compensation expenses for the ESPP in 2017 or 2016.