Equity Compensation Plans

12 Months Ended

Dec. 31, 2025

Note 12. Equity Compensation Plans

The Company’s 2021 and 2018 Equity Compensation Plans (the “2021 Plan” and the “2018 Plan,” respectively), provide for the grant of stock-based compensation awards to members of management, including employees and management officials, and members of the Board. Under the 2021 Plan, a total of 427,500 shares of the Company’s common stock or equivalents were approved for issuance, of which 157,445 and 230,966 shares remain available for issuance at December 31, 2025 and 2024, respectively. Of the total 346,000 shares of common stock approved for issuance under the 2018 Plan, 8,767 and 2,795 shares remain available for issuance at December 31, 2025 and 2024, respectively.

Stock Options

Stock options are granted with an exercise price equal to the fair market value of the Company’s common stock at the date of grant, and generally with vesting periods of three years and contractual terms of ten years. All stock options fully vest upon a change in control.

The fair value of stock options is estimated on the date of grant using a closed form option valuation (Black-Scholes) model. Expected volatilities are based on historical volatilities of the common stock of the Company’s peers. The Company uses historical data to estimate option exercise and post-vesting termination behavior. Expected terms are based on historical data and represent the periods in which the options are expected to be outstanding. 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 grant.

There were 42,000 stock options exercised resulting in the net issuance (after netting the value of the exercise price and/or certain tax liabilities) of 14,332 shares of common stock during the year ended December 31, 2025. There were 99,392 stock options exercised resulting in the net issuance (after netting the value of the exercise price and/or certain tax liabilities) of 39,170 shares of common stock during the year ended December 31, 2024.

A summary of stock option activity follows (aggregate intrinsic value in thousands):


						Weighted
		Weighted				Average
		Average		Aggregate		Remaining
	Number of	Exercise		Intrinsic		Contractual
	Options	Price		Value		Term
Outstanding, January 1, 2025	58,000	$	8.11	$	835	0.82 years
Granted	—		—
Exercised	(42,000)		6.25
Forfeited	—		—
Outstanding, December 31, 2025 ⁽¹⁾	16,000	$	13.00	$	164	0.67 years

(1)	All outstanding options are fully vested and exercisable

The following table presents information related to the stock option plan for the periods presented:


	Year Ended December 31,
(in thousands)	2025			2024
Intrinsic value of options exercised	$	847		$	736
Cash received from option exercises		—			103
Tax benefit from option exercises		296			229

There was no compensation expense attributable to stock options for the years ended December 31, 2025 and 2024.

Restricted Stock Awards

During the years ended December 31, 2025 and 2024, restricted stock awards of 58,250 shares and 59,911 shares, respectively, were granted with a five-year vesting period. Compensation expense is recognized over the vesting period of the awards based on the fair value of the stock at issue date.

A summary of restricted stock awards activity follows:


				Weighted-Average
		Number of		Grant Date
		Shares		Fair Value
Unvested, January 1, 2025		236,203		$	18.95
Granted		58,250			25.75
Vested		(76,790)			19.20
Forfeited		(17,259)			19.91
Unvested, December 31, 2025		200,404		$	20.76

Compensation expense attributable to restricted stock awards was $1.3 million and $1.4 million for the years ended December 31, 2025 and 2024, respectively. As of December 31, 2025 and 2024, there was $2.9 million and $3.1 million of total unrealized compensation cost related to unvested restricted stock, expected to be recognized over a weighted-average term of 3.01 years and 3.00 years, respectively. The total fair value of shares vested during the years ended December 31, 2025 and 2024 was $1.9 million and $1.3 million, respectively.

Restricted Stock Units

Long Term Incentive Plan

Restricted stock units (“RSU”s) represent an obligation to deliver shares to a grantee at a future date if certain vesting conditions are met. RSUs are subject to a time-based vesting schedule and the satisfaction of performance conditions and are settled in shares of the Company's common stock. RSUs do not provide voting rights and RSUs may accrue dividends from the date of grant.

The following table summarizes the unvested performance-based RSU activity for the year ended December 31, 2025:


				Weighted-Average
		Number of		Grant Date Fair
		Shares		Value
Unvested, January 1, 2025		38,271		$	19.73
Granted		22,345			26.30
Incremental performance shares vested		9,086			19.73
Vested		(42,484)			19.73
Forfeited		(4,873)			19.73
Unvested, December 31, 2025		22,345		$	26.30

No RSUs were granted during the year ended December 31, 2024. During the year ended December 31, 2025, the Company granted 22,345 RSUs. These performance-based RSUs cliff vest after three years and are subject to the achievement of the Company's pre-defined performance goals for the three-year period ending December 31, 2027.

Compensation expense attributable to RSUs were $300 thousand and $224 thousand for the years ended December 31, 2025 and 2024, respectively. As of December 31, 2025 and 2024, there was $414 thousand and $31 thousand of total unrecognized compensation cost related to non-vested RSUs. The cost is expected to be recognized over a weighted-average period of 2.21 years and 0.14 years, respectively.

Hanover Bancorp, Inc. /MD 10-K