Hanover Bancorp, Inc. /MD Stock Compensation Disclosure

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 230,966, 276,127 and 276,127 shares remain available for issuance at December 31, 2024 and 2023 and September 30, 2023, respectively. Of the total 346,000 shares of common stock approved for issuance under the 2018 Plan, 2,795, 11,352 and 21,784 shares remain available for issuance at December 31, 2024 and 2023 and September 30, 2023, 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 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. There were 33,400 and 10,614 stock options exercised during the three months ended December 31, 2023 and the year ended September 30, 2023, respectively.

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

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

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There was no compensation expense attributable to stock options for the years ended December 31, 2024 and September 30, 2023 and the three months ended December 31, 2023.

Restricted Stock Awards

During the three months ended December 31, 2023, the year ended December 31, 2024 and the fiscal year ended September 30, 2023, restricted stock awards of 14,000 shares, 59,911 shares and 50,580 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:

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Compensation expense attributable to restricted stock awards was $1.4 million and $1.7 million for the years ended December 31, 2024 and September 30, 2023, respectively, and $0.3 million for the three months ended December 31, 2023. As of December 31, 2024 and 2023 and September 30, 2023, there was $3.1 million, $3.5 million and $3.6 million of total unrealized compensation cost related to unvested restricted stock, expected to be recognized over a weighted-average term of 3.00 years, 3.32 years and 3.41 years, respectively. The total fair value of shares vested during the years ended December 31, 2024 and September 30, 2023 was $1.3 million and $1.4 million, respectively, and $0.1 million during the three months ended December 31, 2023.

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Restricted Stock Units

Long Term Incentive Plan

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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.

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The following table summarizes the unvested performance-based RSU activity for the three months ended December 31, 2023 and the year ended December 31, 2024:

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No RSUs were granted during the three months ended December 31, 2023, the year ended December 31, 2024 and the fiscal year ended September 30, 2023. Performance-based RSUs granted in 2022 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, 2024.

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Compensation expense attributable to RSUs were $0.2 million and $0.2 million for the years ended December 31, 2024 and September 30, 2023, respectively, and $0.1 million for the three months ended December 31, 2023. As of December 31, 2024 and 2023 and September 30, 2023, there was $31 thousand, $0.3 million and $0.3 million of total unrecognized compensation cost related to non-vested RSUs. The cost is expected to be recognized over a weighted-average period of 0.14 years, 1.14 years and 1.39 years, respectively.