Stock-Based Compensation

9 Months Ended

Sep. 30, 2011

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Disclosure of Compensation Related Costs, Share-based Payments [Text Block]

Note 7 - Stock-Based Compensation

As of September 30, 2011, the Company maintained two equity compensation plans under which it may issue shares of common stock or grant other equity-based awards:  (i) the Shore Bancshares, Inc. 2006 Stock and Incentive Compensation Plan (“2006 Equity Plan”); and (ii) the Shore Bancshares, Inc. 1998 Stock Option Plan (the “1998 Option Plan”).  The Company’s ability to grant options under the 1998 Option Plan expired on March 3, 2008 pursuant to the terms of that plan, but stock options granted thereunder were outstanding as of September 30, 2011.

Stock-based awards granted to date generally are time-based, vest in equal installments on each anniversary of the grant date over a three- to five-year period of time, and, in the case of stock options, expire 10 years from the grant date.

During the three and nine months ended September 30, 2011, the Company recognized pre-tax stock-based compensation expense of $104 thousand and $241 thousand, respectively,  compared to $92 thousand and $301 thousand, respectively, for the same periods last year.  Stock-based compensation expense is recognized ratably over the requisite service period for all awards, is based on the grant-date fair value and reflects forfeitures as they occur.  Unrecognized stock-based compensation expense related to nonvested share-based compensation arrangements was $264 thousand as of September 30, 2011.  The weighted-average period over which this unrecognized expense was expected to be recognized was approximately 10 months.

The following table summarizes restricted stock award activity for the Company under the 2006 Equity Plan for the nine months ended September 30, 2011:

	Number			Weighted Average Grant
	of Shares			Date Fair Value
Nonvested at beginning of period		44,127		$	16.76
Granted		13,923			6.99
Vested		(12,271	)		18.95
Cancelled		-			-
Nonvested at end of period		45,779		$	13.20

The Company estimates the fair value of stock options using the Black-Scholes valuation model with weighted average assumptions for dividend yield, expected volatility, risk-free interest rate and expected lives (in years).  The expected dividend yield is calculated by dividing the total expected annual dividend payout by the average stock price.  The expected volatility is based on historical volatility of the underlying securities.  The risk-free interest rate is based on the Federal Reserve Bank’s constant maturities daily interest rate in effect at grant date.  The expected life of the options represents the period of time that the Company expects the awards to be outstanding based on historical experience with similar awards.

The following table summarizes stock option activity for the Company for the nine months ended September 30, 2011:

				Weighted		Aggregate
	Number			Average		Intrinsic
	of Shares			Exercise Price		Value
Outstanding at beginning of period		8,420		$	13.17
Granted		-			-
Exercised		-			-
Expired/Cancelled		(1,295	)		13.17
Outstanding at end of period		7,125			13.17	$	-
Exercisable at end of period		7,125		$	13.17	$	-

At September 30, 2011, all 7,125 outstanding options were exercisable, had a weighted average exercise price of $13.17 per share, and expire on April 11, 2012.

There was no aggregate intrinsic value of the options outstanding and exercisable based on the $4.36 market value per share of the Company’s common stock at September 30, 2011.  Since there were no options exercised during the first nine months of 2011 or 2010, there was no intrinsic value of stock options exercised and no cash received on exercise of options.