At its 2020 Annual Shareholders’ Meeting, the NI Holdings, Inc. 2020 Stock and Incentive Plan (the “Plan”) was approved by shareholders. The purpose of the Plan is to promote the interests of the Company and its shareholders by aiding the Company in attracting and retaining employees, officers, consultants, independent contractors, advisors, and non-employee directors capable of assuring the future success of the Company, to offer such persons incentives to put forth maximum efforts for the success of the Company’s business and to afford such persons an opportunity to acquire an ownership interest in the Company, thereby aligning the interests of such persons with the Company’s shareholders.

The Plan provides for the grant of nonqualified stock options, incentive stock options, restricted stock units (“RSUs”), stock appreciation rights, dividend equivalents, and performance share units (“PSUs”) to employees, officers, consultants, advisors, non-employee directors, and independent contractors designated by the Compensation Committee of the Board of Directors (the “Compensation Committee”). Awards made under the Plan are based upon, among other things, a participant’s level of responsibility and performance within the Company.

The total aggregate number of shares of common stock that awards may be issued under all awards made under the Plan shall not exceed 1,000,000 shares of common stock, subject to adjustments as provided in the Plan. No eligible participant may be granted any awards for more than 100,000 shares in the aggregate in any calendar year, subject to adjustment in accordance with the Plan. The aggregate amount payable pursuant to all performance awards denominated in cash to any eligible person in any calendar year is limited to $1,000 in value. Directors who are not also employees of the Company may not be granted awards denominated in shares that exceed $150 in any calendar year.

The Compensation Committee has awarded RSUs to non-employee directors and select executives. RSUs are promises to issue actual shares of common stock at the end of a vesting period. The RSUs granted to executives under the Plan were based on salary and vest 20% per year over a five-year period, while RSUs granted to non-employee directors vest 100% on the date of the next

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NI Holdings, Inc.

Notes to Unaudited Consolidated Financial Statements

(dollar amounts in thousands, except per share amounts)

annual meeting of shareholders following the grant date. Dividend equivalents on RSUs are accrued during the vesting period and paid in cash at the end of the vesting period, but are subject to forfeiture until the underlying shares become vested. Participants do not have voting rights with respect to RSUs.

The Company recognizes stock-based compensation costs based on the grant date fair value. The compensation costs are normally expensed over the vesting periods to each vesting date; however, the cost of RSUs granted to executives are expensed immediately if the executive has met certain retirement criteria and the RSUs become non-forfeitable. Estimated forfeitures are included in the determination of compensation costs. No forfeitures are currently estimated.

A summary of the Company’s outstanding and unearned restricted stock units is presented below:

	RSUs			Weighted-Average Grant-Date Fair Value Per Share
Units outstanding and unearned at January 1, 2020		96,540		$	16.47
RSUs granted during 2020		66,000			14.27
RSUs earned during 2020		(46,760	)		16.33
Units outstanding and unearned at December 31, 2020		115,780		$	15.27

RSUs granted during 2021		58,700			18.76
RSUs earned during 2021		(60,720	)		15.73
Units outstanding and unearned at June 30, 2021		113,760		$	16.83

The following table shows the impact of RSU activity to the Company’s financial results:

	Three Months Ended June 30,						Six Months Ended June 30,
	2021			2020			2021			2020
RSU compensation expense	$	229		$	193		$	617		$	613
Income tax benefit		(48	)		(41	)		(130	)		(129	)
RSU compensation expense, net of income taxes	$	181		$	152		$	487		$	484

At June 30, 2021, there was $1,166 of unrecognized compensation cost related to outstanding RSUs. That cost is expected to be recognized over a weighted-average period of 2.08 years.

Performance Stock Units

The Compensation Committee has awarded PSUs to select executives. PSUs are promises to issue actual shares of common stock at the end of a vesting period, if certain performance conditions are met. The PSUs granted to employees under the Plan were based on salary and include a three-year book value cumulative growth target with threshold and stretch goals. They will vest on the third anniversary of the grant date, subject to the participant’s continuous employment through the vesting date and the level of performance achieved. Dividend equivalents on PSUs are accrued and paid in cash at the end of the performance period in accordance with the level of performance achieved, but are subject to forfeiture until the underlying shares become vested. Participants do not have voting rights with respect to PSUs.

The Company recognizes stock-based compensation costs based on the grant date fair value over the performance period of the awards. Estimated forfeitures are included in the determination of compensation costs. The current cost estimate assumes that the cumulative growth targets will be achieved or exceeded.

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NI Holdings, Inc.

Notes to Unaudited Consolidated Financial Statements

(dollar amounts in thousands, except per share amounts)

A summary of the Company’s outstanding performance share units is presented below:

	PSUs			Weighted-Average Grant-Date Fair Value Per Share
Units outstanding at January 1, 2020		111,000		$	15.27
PSUs granted during 2020 (at target)		63,600			14.26
Units outstanding at December 31, 2020		174,600		$	15.15

PSUs granted during 2021 (at target)		64,600			18.64
PSUs earned during 2021		(70,363	)		16.25
Performance adjustment⁽¹⁾		24,300			16.25
Forfeitures		(2,537	)		16.25
Units outstanding at June 30, 2021		190,600		$	16.06

⁽¹⁾ Represents the change in PSUs issued based upon the attainment of performance goals established by the Company.

The following table shows the impact of PSU activity to the Company’s financial results:

	Three Months Ended June 30,						Six Months Ended June 30,
	2021			2020			2021			2020
PSU compensation expense	$	287		$	271		$	571		$	564
Income tax benefit		(60	)		(56	)		(120	)		(118	)
PSU compensation expense, net of income taxes	$	227		$	215		$	451		$	446

The PSU grants above represent initial target awards and do not reflect potential increases or decreases resulting from financial performance objectives to be determined at the end of the performance period. The actual number of shares to be issued at the end of the performance period will range from 0% to 150% of the initial target awards.

At June 30, 2021, there was $1,724 of unrecognized compensation cost related to outstanding PSUs. That cost is expected to be recognized over a weighted-average period of 2.06 years.