Stock-Based Compensation

9 Months Ended

Sep. 30, 2012

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, 2012, the Company maintained the Shore Bancshares, Inc. 2006 Stock and Incentive Compensation Plan (“2006 Equity Plan”) under which it may issue shares of common stock or grant other equity-based awards. The Company’s ability to grant options under the Shore Bancshares, Inc. 1998 Stock Option Plan (the “1998 Option Plan”) expired on March 3, 2008 and all of the remaining 7,125 outstanding options expired on May 9, 2012.

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. 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.

During the first quarter of 2012, the Company granted options to purchase 54,216 shares of the Company’s common stock pursuant to the 2006 Equity Plan. The options have an exercise price of $6.64 and vest 50% after two years from date of grant and 50% after three years from date of grant.

The following tables provide information on stock-based compensation expense for the three and nine months ended September 30, 2012 and 2011.

	For the Three Months Ended				For the Nine Months Ended
	September 30,				September 30,
(Dollars in thousands)	2012		2011		2012		2011
Stock-based compensation expense	$	33	$	104	$	174	$	241

	September 30,
(Dollars in thousands)	2012		2011
Unrecognized stock-based compensation expense	$	178	$	264
Weighted average period unrecognized expense is expected to be recognized		2.2 years		0.8 years

The following table summarizes restricted stock award activity for the Company under the 2006 Equity Plan for the nine months ended September 30, 2012.

	Number			Weighted Average Grant
	of Shares			Date Fair Value
Nonvested at beginning of period		45,779		$	13.20
Granted		-			-
Vested		(39,231	)		12.92
Cancelled		-			-
Nonvested at end of period		6,548		$	14.89

The following table summarizes stock option activity for the Company under the 2006 Equity Plan for the nine months ended September 30, 2012.

			Weighted		Aggregate		Weighted Average
	Number		Average		Intrinsic		Grant Date
	of Shares		Exercise Price		Value		Fair Value
Outstanding at beginning of period		-	$	-			$	-
Granted		54,216		6.64				3.44
Exercised		-		-				-
Expired/Cancelled		-		-				-
Outstanding at end of period		54,216	$	6.64	$	-	$	3.44
Exercisable at end of period		-	$	-	$	-	$	-

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 contract life (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 contract 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 weighted average assumptions were used as inputs to the Black-Scholes valuation model for options granted in 2012.

Dividend yield	0.60%
Expected volatility	58.65%
Risk-free interest rate	1.69%
Expected contract life (in years)	5.83

There was no aggregate intrinsic value of the options outstanding under the 2006 Equity Plan based on the $6.02 market value per share of Shore Bancshares, Inc.’s common stock at September 30, 2012. Since there were no options exercised during the first nine months of 2012 or 2011, there was no intrinsic value associated with stock options exercised and no cash received on exercise of options. At September 30, 2012, the weighted average remaining contract life of options outstanding was 9.5 years.