STOCK-BASED COMPENSATION

12 Months Ended

Dec. 31, 2011

Disclosure Of Compensation Related Costs, Share-Based Payments [Abstract]

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

NOTE 14. STOCK-BASED COMPENSATION

At December 31, 2011, Shore Bancshares, Inc. 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 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 December 31, 2011.

Stock-based compensation expense totaled $338 thousand, $390 thousand and $102 thousand in 2011, 2010, and 2009, respectively. 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. The excess tax expense recognized in the accompanying consolidated statements of income related to stock-based compensation was $45 thousand, $20 thousand, and $5 thousand in 2011, 2010, and 2009, respectively. Unrecognized stock-based compensation expense related to stock-based awards totaled $167 thousand at December 31, 2011. At such date, the weighted-average period over which this unrecognized expense was expected to be recognized was 8.5 months.

Under the 2006 Equity Plan, stock-based awards may be granted periodically to directors, executive officers, and key employees at the discretion of the Compensation Committee of the Board of Shore Bancshares, Inc. Stock-based awards granted to date under the 2006 Equity Plan are generally time-based, vesting on each anniversary of the grant date over a three- to five-year period of time and, in the case of stock options, expiring 10 years from the grant date. The 2006 Equity Plan originally reserved 631,972 shares of common stock for grant, and 561,294 shares remained available for grant at December 31, 2011.

The following table summarizes restricted stock award activity for the Company under the 2006 Equity Plan for the two years ended December 31, 2011.

	Year Ended December 31, 2011					Year Ended December 31, 2010
	Number			Weighted Average Grant		Number			Weighted Average Grant
	of Shares			Date Fair Value		of Shares			Date Fair Value
Nonvested at beginning of year		44,127		$	16.76		27,405		$	20.23
Granted		13,923			6.99		24,473			13.41
Vested		(12,271	)		18.95		(7,751	)		18.47
Cancelled		-			-		-			-
Nonvested at end of year		45,779			13.20		44,127			16.76

The total fair value of restricted stock awards that vested was $119 thousand in 2011 and $163 thousand in 2010.

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. No options were granted during 2011 or 2010.

There was no aggregate intrinsic value of the options outstanding and exercisable based on the $5.15 market value per share of the Company’s common stock at December 31, 2011. Since there were no options exercised during 2011 or 2010, there was no intrinsic value of stock options exercised and no cash received on exercise of options. No stock options vested in 2011 or 2010.

The following is a summary of stock option activity for the 1998 Option Plan for 2011 and 2010.

	Year Ended December 31, 2011					Year Ended December 31, 2010
	Number			Weighted Average		Number			Weighted Average
	of Shares			Exercise Price		of Shares			Exercise Price
Outstanding at beginning of year		8,420		$	13.17		10,850		$	13.36
Granted		-			-		-			-
Exercised		-			-		-			-
Expired/Cancelled		(1,295	)		13.17		(2,430	)		14.00
Outstanding at end of year		7,125			13.17		8,420			13.17

At December 31, 2011, all 7,125 outstanding options were exercisable, had a weighted average exercise price of $13.17 per share, and expire on May 9, 2012.