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Stock Options and Restricted Stock

12 Months Ended

Dec. 31, 2024

Stock Options and Restricted Stock

Stock Options and Restricted Stock

Note 18: Stock Options and Restricted Stock

In 2012, the Company adopted the Bridgewater Bancshares, Inc. 2012 Combined Incentive and Non-Statutory Stock Option Plan (the “2012 Plan”) under which the Company was able to grant options to its directors, officers, and employees for up to 750,000 shares of common stock. Both incentive stock options and nonqualified stock options were granted under the 2012 Plan. The exercise price of each option equals the fair market value of the Company’s stock on the date of grant, and the maximum term of each outstanding option is ten years. All outstanding options have been granted with vesting periods of four or five years. The 2012 Plan expired in March 2022, and awards are no longer able to be granted under the 2012 Plan.

In 2017, the Company adopted the Bridgewater Bancshares, Inc. 2017 Combined Incentive and Non-Statutory Stock Option Plan (the “2017 Plan”). Under the 2017 Plan, the Company may grant options to its directors, officers, employees and consultants for up to 1,500,000 shares of common stock. Both incentive stock options and nonqualified stock options may be granted under the 2017 Plan. The exercise price of each option equals the fair market value of the Company’s stock on the date of grant and the maximum term of each outstanding option is ten years. All outstanding options have been granted with vesting periods of four or five years. As of December 31, 2024 and 2023, there were 30,000 and 5,000 shares, respectively, of the Company’s common stock reserved for future option grants under the 2017 Plan.

In 2019, the Company adopted the Bridgewater Bancshares, Inc. 2019 Equity Incentive Plan (the “2019 EIP”). The types of awards which may be granted under the 2019 EIP include incentive and nonqualified stock options, stock appreciation rights, stock awards, restricted stock units, restricted stock and cash incentive awards. The Company may grant these awards to its directors, officers, employees and certain other service providers for up to 1,000,000 shares of common stock. The exercise price of each option equals the fair market value of the Company’s stock on the date of grant and the maximum term of each award is ten years. All outstanding awards have been granted with vesting periods of four years. As of December 31, 2024, and 2023, there were 87 and -0- shares, respectively, of the Company’s common stock reserved for future grants under the 2019 EIP.

In 2023, the Company adopted the Bridgewater Bancshares, Inc. 2023 Equity Incentive Plan (the “2023 EIP”). Under the 2023 EIP, the Company may grant incentive and nonqualified stock options, stock appreciation rights, stock awards, restricted stock units, restricted stock and cash incentive awards. The Company may grant these awards to its directors, officers, employees and certain other service providers for up to 1,500,000 shares of common stock. The exercise price of each option equals the fair market value of the Company’s stock on the date of grant and the maximum term of each award is ten years. All outstanding awards have been granted with a vesting period of four years. As of December 31, 2024, and 2023, there were 972,460 and 1,107,752 shares, respectively, of the Company’s common stock reserved for future grants under the 2023 EIP.

Stock Options

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 an industry index as described below. The expected term of options granted is based on historical data and represents the period of time that options granted are expected to be outstanding, which takes into account that the options are not transferable. The risk-free interest rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of the grant. Historically, the Company has not paid a dividend on its common stock and does not expect to do so in the near future.

The Company used the S&P 600 CM Bank Index as its historical volatility index. The S&P 600 CM Bank Index is an index of publicly traded small capitalization, regional, commercial banks located throughout the United States. There were 59 banks in the index ranging in market capitalization from $600.0 million up to $5.0 billion.

The weighted average assumptions used in the model for valuing stock option grants in 2024 is as follows:


		December 31,
		2024
Dividend Yield		—	%
Expected Life		7	Years
Expected Volatility		30.32	%
Risk-Free Interest Rate		3.89	%

The following table presents a summary of the status of the Company’s outstanding stock options for the years ended December 31, 2024 and 2023:


		December 31, 2024					December 31, 2023
				Weighted					Weighted
				Average					Average
		Shares		Exercise Price			Shares		Exercise Price
Outstanding at Beginning of Year		2,014,994		$	10.57		1,913,444		$	9.35
Granted		10,000			13.17		421,500			10.84
Exercised		(99,385)			7.68		(305,950)			3.15
Forfeitures		(65,000)			11.81		(14,000)			14.63
Outstanding at Period End		1,860,609		$	10.69		2,014,994		$	10.57

Options Exercisable at Period End		1,423,108		$	9.95		1,348,744		$	9.36

For the years ended December 31, 2024, 2023 and 2022, the Company recognized compensation expense for stock options of $917,000, $851,000 and $1.1 million, respectively.

The following table presents information pertaining to options outstanding at December 31, 2024:


			Options Outstanding							Options Exercisable
								Weighted Average
			Number of		Weighted Average			Remaining Contractual		Number of		Weighted Average
Range of Exercise Prices			Options		Exercise Price			Life in Years		Options		Exercise Price
$	7.00 - 7.99		827,120			7.47		2.7		827,120			7.47
	8.00 - 8.99		7,461			8.76		5.2		7,461			8.76
	10.00 - 10.99		221,500			10.62		8.4		57,249			10.55
	11.00 - 11.99		240,500			11.16		7.3		122,375			11.22
	12.00 - 12.99		263,528			12.90		4.6		263,528			12.90
	13.00 - 13.99		10,000			13.17		9.6		—			—
	17.00 - 17.99		290,500			17.50		7.1		145,375			17.50
	Totals		1,860,609		$	10.69		5.0		1,423,108		$	9.95

As of December 31, 2024, there was $1.8 million of total unrecognized compensation cost related to nonvested stock options that is expected to be recognized over a weighted-average period of 2.2 years.

The following table presents an analysis of nonvested options to purchase shares of the Company’s stock issued and outstanding for the year ended December 31, 2024:


				Weighted
		Number of		Average Grant
		Shares		Date Fair Value
Nonvested Options at December 31, 2023		666,250		$	5.09
Granted		10,000			5.35
Vested		(198,749)			4.97
Forfeited		(40,000)			4.88
Nonvested Options at December 31, 2024		437,501		$	5.18

Restricted Stock Awards

In 2019 and 2020, the Company granted restricted stock awards out of the 2019 EIP. These awards vest in equal annual installments on the first four anniversaries of the date of the grant. Nonvested restricted stock awards are classified as outstanding shares with voting and forfeitable dividend rights.

The following table presents an analysis of nonvested restricted stock awards outstanding for the years ended December 31, 2024 and 2023:


		December 31, 2024					December 31, 2023
				Weighted					Weighted
		Number of		Average Grant			Number of		Average Grant
		Shares		Date Fair Value			Shares		Date Fair Value
Nonvested at December 31, 2023		3,411		$	10.53		38,762		$	12.50
Granted		—			—		—			—
Vested		(3,411)			10.53		(35,101)			12.69
Forfeited		—			—		(250)			12.92
Nonvested at December 31, 2024		—		$	—		3,411		$	10.53

Compensation expense associated with the restricted stock awards is recognized on a straight-line basis over the period that the restrictions associated with the awards lapse based on the total cost of the award at the grant date. For the years ended December 31, 2024, 2023 and 2022, the Company recognized compensation expense for restricted stock awards of $13,000, $417,000 and $448,000, respectively.

As of December 31, 2024, all compensation cost related to nonvested restricted stock awards granted under the 2019 EIP had been recognized.

In addition, during the year ended December 31, 2024, the Company issued 38,724 shares of common stock to directors as a part of their compensation for their annual services on the Company’s board of directors. The aggregate value of the shares issued to directors of $489,000 was included in stock-based compensation expense in the accompanying consolidated statements of shareholders’ equity.

Restricted Stock Units

The Company has granted restricted stock units out of the 2019 EIP and 2023 EIP. Restricted stock units represent the right to receive one share of Company stock upon vesting and vest in equal annual installments on the first four anniversaries of the date of the grant. Nonvested restricted stock units have no voting or dividend rights and are not considered outstanding until vested and settled.

The following table presents an analysis of nonvested restricted stock units outstanding for the years ended December 31, 2024 and 2023:


		December 31, 2024					December 31, 2023
				Weighted					Weighted
		Number of		Average Grant			Number of		Average Grant
		Shares		Date Fair Value			Shares		Date Fair Value
Nonvested at December 31, 2023		441,015		$	14.71		351,310		$	16.30
Granted		178,010			14.06		221,561			12.77
Vested		(160,630)			14.67		(121,603)			15.53
Forfeited		(42,637)			14.59		(10,253)			17.79
Nonvested at December 31, 2024		415,758		$	14.46		441,015		$	14.71

Compensation expense associated with the restricted stock units is recognized on a straight-line basis over the period that the restrictions associated with the units lapse based on the total cost of the unit at the grant date. For the years ended December 31, 2024, 2023 and 2022, the Company recognized compensation expense for restricted stock units of $2.5 million, $2.2 million and $1.5 million, respectively.

As of December 31, 2024, there was $5.4 million of total unrecognized compensation cost related to nonvested restricted stock units granted under the 2019 EIP or 2023 EIP that is expected to be recognized over a weighted-average period of 2.8 years.