Waterstone Financial, Inc. Stock Compensation Disclosure
| 9) | Stock Based Compensation |
Stock-Based Compensation Plan
In 2020, the 2020 Omnibus Incentive Plan was approved. All stock awards granted under this plan are required to be settled in shares of the Company’s common stock. The exercise price for all stock options granted was equal to the quoted NASDAQ market closing price on the date that the awards were granted and the stock options expire years after the grant date, if not exercised. All restricted stock grants are issued from previously unissued shares.
A total of 750,000 stock options and 500,000 restricted shares were approved for award. A total of 619,000 stock options and 346,612 restricted stock were available to be issued as of December 31, 2025.
Accounting for Stock-Based Compensation Plan
The fair value of stock options granted is estimated on the grant date using a Black-Scholes pricing model. The fair value of restricted shares is equal to the quoted NASDAQ market closing price on the date of grant. The fair value of stock grants is recognized as compensation expense on a straight-line basis over the vesting period of the grants. Compensation expense is included in compensation, payroll taxes and other employee benefits in the consolidated statements of income.
Assumptions are used in estimating the fair value of stock options granted. The weighted average expected life of the stock options represents the period of time that the options are expected to be outstanding and is based on the historical results from the previous awards. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant. The expected volatility is based on the actual volatility of Waterstone Financial, Inc. stock for the weighted average life time period prior to issuance date. The following assumptions were used in estimating the fair value of options granted in the years ended December 31, 2025 and 2024.
| 2025 | 2024 | |||||||||||||||
| Minimum | Maximum | Minimum | Maximum | |||||||||||||
| Dividend yield | 4.22 | % | 4.48 | % | 2.99 | % | 5.19 | % | ||||||||
| Risk-free interest rate | 3.99 | % | 4.12 | % | 3.58 | % | 4.63 | % | ||||||||
| Expected volatility | 28.25 | % | 29.26 | % | 26.67 | % | 27.81 | % | ||||||||
| Weighted average expected life | 5.5 | 5.7 | 5.1 | 5.7 | ||||||||||||
| Weighted average per share value of options | 2.71 | 2.93 | 2.01 | 2.99 | ||||||||||||
The Company's policy is to adjust compensation expense at the time of actual stock grant forfeiture.
A summary of the Company’s stock option activity for the years ended December 31, 2025, 2024 and 2023 is presented below.
| Weighted Average | Aggregate | |||||||||||||||
| Weighted Average | Years Remaining in | Intrinsic Value | ||||||||||||||
| Stock Options | Shares | Exercise Price | Contractual Term | (000's) | ||||||||||||
| Outstanding December 31, 2022 | 555,619 | $ | 14.35 | 3.41 | $ | 1,708 | ||||||||||
| Options exercisable at December 31, 2022 | 409,119 | 13.76 | 2.59 | $ | 1,408 | |||||||||||
| Granted | 40,000 | 14.20 | $ | 15 | ||||||||||||
| Exercised | (64,219 | ) | 12.75 | 93 | ||||||||||||
| Forfeited | (21,000 | ) | 19.24 | - | ||||||||||||
| Outstanding December 31, 2023 | 510,400 | 14.34 | 3.17 | $ | 473 | |||||||||||
| Options exercisable at December 31, 2023 | 425,400 | 13.92 | 2.08 | $ | 454 | |||||||||||
| Granted | 55,000 | 12.66 | $ | 63 | ||||||||||||
| Exercised | (129,868 | ) | 12.79 | 85 | ||||||||||||
| Forfeited | (15,000 | ) | 13.66 | 11 | ||||||||||||
| Outstanding December 31, 2024 | 420,532 | 14.62 | 3.48 | $ | 188 | |||||||||||
| Options exercisable at December 31, 2024 | 325,190 | 14.51 | 2.02 | $ | 141 | |||||||||||
| Granted | 15,000 | 13.58 | $ | 45 | ||||||||||||
| Exercised | (187,632 | ) | 12.81 | 226 | ||||||||||||
| Forfeited | (33,900 | ) | 14.95 | 42 | ||||||||||||
| Outstanding December 31, 2025 | 214,000 | 16.07 | 5.15 | $ | 102 | |||||||||||
| Options exercisable at December 31, 2025 | 156,000 | 16.49 | 4.16 | $ | 9 | |||||||||||
The following table summarizes information about the Company's stock options outstanding at December 31, 2025.
| Options Outstanding | Weighted Average Exercise Price | Remaining Life (Years) | Options Exercisable | Weighted Average Exercise Price | Remaining Life (Years) | |||||||||||||||||||
| Range of Exercise Prices: | ||||||||||||||||||||||||
| $0.01 - $10.00 | - | $ | - | - | - | $ | - | - | ||||||||||||||||
| $10.01 - $15.00 | 89,000 | 13.26 | 6.92 | 49,000 | 13.07 | 5.68 | ||||||||||||||||||
| $15.01 - $20.00 | 115,000 | 17.80 | 3.71 | 99,000 | 17.81 | 3.26 | ||||||||||||||||||
| Over $20.01 | 10,000 | 21.27 | 5.90 | 8,000 | 21.27 | 5.90 | ||||||||||||||||||
| Total | 214,000 | $ | 16.07 | 5.15 | 156,000 | $ | 16.49 | 4.16 | ||||||||||||||||
The following table summarizes information about the Company’s nonvested stock option activity for the years ended December 31, 2025 and 2024:
| Weighted Average | ||||||||
| Stock Options | Shares | Grant Date Fair Value | ||||||
| Nonvested at December 31, 2023 | 85,000 | $ | 2.17 | |||||
| Granted | 55,000 | 2.33 | ||||||
| Vested | (30,658 | ) | 2.21 | |||||
| Forfeited | (14,000 | ) | 2.20 | |||||
| Nonvested at December 31, 2024 | 95,342 | 2.35 | ||||||
| Nonvested at December 31, 2024 | 95,342 | 2.35 | ||||||
| Granted | 15,000 | 2.76 | ||||||
| Vested | (32,342 | ) | 2.16 | |||||
| Forfeited | (20,000 | ) | 2.48 | |||||
| Nonvested at December 31, 2025 | 58,000 | 2.42 | ||||||
The Company amortizes the expense related to stock options as compensation expense over the vesting period. Expense for the stock options granted of $124,000, $75,000 and $107,000 was recognized during the years ended December 31, 2025, 2024 and 2023, respectively. At December 31, 2025, the Company had $122,000 in estimated unrecognized compensation costs related to outstanding stock options that is expected to be recognized over a weighted average period of 35 months.
The following table summarizes information about the Company’s restricted stock shares activity for the years ended December 31, 2025 and 2024:
| Weighted Average | ||||||||
| Restricted Stock | Shares | Grant Date Fair Value | ||||||
| Nonvested at December 31, 2023 | 65,793 | $ | 18.56 | |||||
| Granted | 69,302 | 7.07 | ||||||
| Vested | (38,231 | ) | 16.69 | |||||
| Forfeited | (2,005 | ) | 20.75 | |||||
| Nonvested at December 31, 2024 | 94,859 | 14.72 | ||||||
| Nonvested at December 31, 2024 | 94,859 | 14.72 | ||||||
| Granted | 35,387 | 13.86 | ||||||
| Vested | (4,622 | ) | 13.85 | |||||
| Forfeited | (17,665 | ) | 19.43 | |||||
| Nonvested at December 31, 2025 | 107,959 | 11.25 | ||||||
The Company amortizes the expense related to restricted stock awards as compensation expense over the vesting period. Expense for the restricted stock awards of $172,000, $240,000 and $170,000 was recorded for the years ended December 31, 2025, 2024 and 2023, respectively. At December 31, 2025, the Company had $371,000 of unrecognized compensation expense related to restricted stock shares that is expected to be recognized over a weighted average period of 24 months.
About Stock Compensation Disclosures
Stock-based compensation disclosures detail the equity awards granted to employees and executives — including stock options, restricted stock units (RSUs), and performance shares — along with the valuation methods and assumptions used to expense them. This section reveals the true cost of talent retention and the alignment between management incentives and shareholder interests.
Key signals: total unrecognized compensation expense and its expected recognition period signal future earnings headwinds from already-granted awards. For stock options, examine Black-Scholes assumptions — expected volatility, risk-free rate, and expected term — as understating any of these reduces reported compensation expense. Compare stock compensation expense as a percentage of revenue against peers to assess dilution cost. Watch vesting schedules for acceleration clauses tied to change-of-control events. Performance-based awards with undemanding targets may indicate weak governance. Add back stock compensation to operating cash flow to calculate a more conservative free cash flow figure.