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Stock-Based Compensation

9 Months Ended

Sep. 30, 2020

Note 11 - Stock-Based Compensation

At the 2016 annual meeting, stockholders approved the Shore Bancshares, Inc. 2016 Stock and Incentive Plan (“2016 Equity Plan”), replacing the Shore Bancshares, Inc. 2006 Stock and Incentive Plan (“2006 Equity Plan”), which expired on that date. The Company may issue shares of common stock or grant other equity-based awards pursuant to the 2016 Equity Plan. Stock-based awards granted to date generally are time-based, vest in equal installments on each anniversary of the grant date and range over a one- to five-year period of time, and, in the case of stock options, expire 10 years from the grant date. As part of the 2016 Equity Plan, a performance equity incentive award program, known as the “Long-term incentive plan” allows participating officers of the Company to earn incentive awards of performance share/restricted stock units if certain pre-determined targets are achieved at the end of a three-year performance cycle. Stock-based compensation expense based on the grant date fair value is recognized ratably over the requisite service period for all awards and reflects forfeitures as they occur. The 2016 Equity Plan originally reserved 750,000 shares of common stock for grant, and 611,664 shares remained available for grant at September 30, 2020.

The following tables provide information on stock-based compensation expense for the three and nine months ended September 30, 2020 and 2019.


	For Three Months Ended				For Nine Months Ended
	September 30,				September 30,
(Dollars in thousands)	2020		2019		2020		2019
Stock-based compensation expense	$	67	$	61	$	190	$	92
Excess tax benefits related to stock-based compensation		—		2		11		5


	September 30,
(Dollars in thousands)	2020			2019
Unrecognized stock-based compensation expense	$	143		$	90
Weighted average period unrecognized expense is expected to be recognized		0.5	years		0.5	years

The following table summarizes restricted stock award activity for the Company under the 2016 Equity Plan for the nine months ended September 30, 2020.


	Nine Months Ended September 30, 2020
		Weighted Average
	Number of	Grant Date
	Shares	Fair Value
Nonvested at beginning of period	15,702	$	15.36
Granted	24,800		13.76
Vested	(15,702)		15.36
Forfeited	(902)		16.25
Nonvested at end of period	23,898	$	13.76

The fair value of restricted stock awards that vested during the first nine months of 2020 and 2019 was $254 thousand and $0, respectively.

Restricted stock units (“RSUs”) are similar to restricted stock, except the recipient does not receive the stock immediately, but instead receives it upon the terms and conditions of the Company’s long-term incentive plans which are subject to performance milestones achieved at the end of a three-year period. Each RSU cliff vests at the end of the three-year period and entitles the recipient to receive one share of common stock on a specified issuance date. The recipient does not have any stockholder rights, including voting rights, with respect to the shares underlying awarded RSUs until the recipient becomes the holder of those shares.

During 2017, the Company entered into a long-term incentive plan agreement with officers of the Company and its subsidiaries to award RSUs based on a performance metric to be achieved as of December 31, 2019. Based on the results for the year ended December 31, 2019, 6,451 shares were vested.

The following table summarizes restricted stock units activity at the end of the performance cycle for the Company under the 2016 Equity Plan for the nine months ended September 30, 2020.


	Nine Months Ended September 30, 2020
		Weighted Average
	Number of	Grant Date
	Shares	Fair Value
Outstanding at beginning of period	6,451	$	16.57
Granted	—		—
Vested	(6,451)		16.57
Forfeited	—		—
Outstanding at end of period	—	$	—

The fair value of restricted stock units that vested during the first nine months of 2020 and 2019 was $107 thousand and $241 thousand, respectively.

The following table summarizes stock option activity for the Company under the 2016 Equity Plan for the nine months ended September 30, 2020.


	Nine Months Ended September 30, 2020
		Weighted Average
	Number of	Grant Date
	Shares	Exercise Price
Outstanding at beginning of period	11,671	$	9.25
Granted	—		—
Exercised	—		—
Expired/Cancelled	—		—
Outstanding at end of period	11,671	$	9.25

Exercisable at end of period	11,671	$	9.25

There were no stock options granted during the three and nine months ended September 30, 2020 and September 30, 2019.

At the end of the third quarter of 2020, the aggregate intrinsic value of the options outstanding under the 2016 Equity Plan was $20 thousand based on the $10.98 market value per share of the Company’s common stock at September 30, 2020. Similarly, the aggregate intrinsic value of the options exercisable was $20 thousand at September 30, 2020. At September 30, 2020, the weighted average remaining contract life of options outstanding and exercisable was 4.1 years.