Note 17: Stock Options and Restricted Stock Awards

The Company established the Bridgewater Bancshares, Inc. 2012 Combined Incentive and Non-Statutory Stock Option Plan (the “2012 Plan”) under which the Company may 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 may be 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 a vesting period of five years. As of December 31, 2019 and 2018, there were no remaining shares of the Company’s common stock reserved for future option grants 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, and 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, 2019 and 2018, there were 310,600 and 540,000, respectively, remaining shares 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 a vesting period of four years. As of December 31, 2019, there were 867,040 of remaining shares of the Company’s common stock reserved for future grants under the 2019 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 54 banks in the index ranging in market capitalization from $500 million up to $4.5 billion.

The weighted average assumptions used in the model for valuing stock option grants in 2019 is as follows:


	December 31,
	2019
Dividend Yield	—	%
Expected Life	7	Years
Expected Volatility	21.93	%
Risk-Free Interest Rate	1.75	%

The following table presents a summary of the status of the Company’s outstanding stock options for the years ended December 31, 2019 and 2018:


	December 31, 2019			December 31, 2018
		Weighted			Weighted
		Average			Average
	Shares	Exercise Price		Shares	Exercise Price
Outstanding at Beginning of Year	1,807,100	$	6.24	1,721,000	$	5.68
Granted	238,000		12.47	135,000		12.52
Exercised	(74,850)		3.45	(37,900)		2.78
Forfeitures	(8,600)		10.65	(11,000)		7.61
Outstanding at End of Year	1,961,650	$	7.08	1,807,100	$	6.24

Options Exercisable at End of Year	992,050	$	5.01	721,100	$	4.19

For the years ended December 31, 2019, 2018 and 2017, the Company recognized compensation expense for stock options of $721, $799 and $368, respectively.

The following table presents information pertaining to options outstanding at December 31, 2019:


		Options Outstanding			Options Exercisable
		Number	Remaining				Number
Exercise Price		Outstanding	Contractual Life		Exercise Price		Outstanding
$	2.13	74,750	3.3	Years	$	2.13		74,750
	3.00	455,000	4.0	Years		3.00		455,000
	3.58	45,000	5.0	Years		3.58		35,000
	7.47	1,023,900	7.8	Years		7.47		402,300
	13.22	25,000	8.4	Years		13.22		5,000
	12.86	45,000	8.7	Years		12.86		9,000
	12.94	30,000	8.8	Years		12.94		6,000
	11.59	25,000	8.8	Years		11.59		5,000
	11.15	10,000	9.2	Years		11.15		—
	11.13	50,000	9.7	Years		11.13		—
	12.92	178,000	9.9	Years		12.92		—
	Totals	1,961,650	7.0	Years	$	7.08		992,050

As of December 31, 2019, there was $2,738 of total unrecognized compensation cost related to nonvested stock options granted under the 2017 Plan, 2012 Plan and 2019 EIP that is expected to be recognized over a weighted-average period of 4.9 years.

The following presents an analysis of nonvested options to purchase shares of the Company’s stock issued and outstanding for the year ended December 31, 2019:


		Weighted
	Number of	Average Grant
	Shares	Date Fair Value
Nonvested Options at December 31, 2018	1,086,000	$	2.78
Granted	238,000		3.46
Vested	(346,200)		2.41
Forfeited	(8,200)		3.40
Nonvested Options at December 31, 2019	969,600	$	3.08

Restricted Stock Awards

In 2019, the Company granted 132,960 restricted stock awards with a grant date fair value of $12.92. These awards were granted out of the 2019 EIP and 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 forefeitable dividend rights.

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 year ended December 31, 2019, the Company recognized compensation expense for restricted stock awards of $31. No compensation expense was recognized for restricted stock awards for the years ended December 31, 2018 and 2017.

As of December 31, 2019, there was $1,687 of total unrecognized compensation cost related to nonvested restricted stock awards granted under the 2019 EIP that is expected to be recognized over a period of four years. No restricted stock awards vested during 2019.