STOCK-BASED COMPENSATION

12 Months Ended

Dec. 31, 2012

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

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

NOTE 13. STOCK-BASED COMPENSATION

As of December 31, 2012, the Company maintained the Shore Bancshares, Inc. 2006 Stock and Incentive Compensation Plan (“2006 Equity Plan”) under which Shore Bancshares, Inc. may issue shares of its common stock or grant other equity-based awards. Shore Bancshares, Inc.’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.

Under the 2006 Equity Plan, stock-based awards may be granted periodically to the Company’s 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. 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 2006 Equity Plan originally reserved 631,972 shares of common stock for grant, and 507,078 shares remained available for grant at December 31, 2012.

The following tables provide information on stock-based compensation expense for 2012, 2011 and 2010.

(Dollars in thousands)	2012		2011		2010
Stock-based compensation expense	$	209	$	338	$	390
Excess tax expense related to stock-based compensation		106		45		20

	December 31,
(Dollars in thousands)	2012		2011		2010
Unrecognized stock-based compensation expense	$	143	$	167	$	424
Weighted average period unrecognized expense is expected to be recognized		2.1 years		8.5 months		1.7 years

The following table summarizes restricted stock award activity for the Company under the 2006 Equity Plan for the two years ended December 31, 2012.

	Year Ended December 31, 2012					Year Ended December 31, 2011
	Number			Weighted Average Grant Date		Number			Weighted Average Grant Date
	of Shares			Fair Value		of Shares			Fair Value
Nonvested at beginning of year		45,779		$	13.20		44,127		$	16.76
Granted		-			-		13,923			6.99
Vested		(39,231	)		12.92		(12,271	)		18.95
Cancelled		-			-		-			-
Nonvested at end of year		6,548		$	14.89		45,779		$	13.20

The total fair value of restricted stock awards that vested was $245 thousand in 2012 and $119 thousand in 2011.

During the first quarter of 2012, Shore Bancshares, Inc. granted options to purchase 54,216 shares of its 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 table summarizes stock option activity for the Company under the 2006 Equity Plan for the year ended December 31, 2012. There were no stock options outstanding or stock option activity under the 2006 Equity Plan during 2011.

	Year Ended December 31, 2012
	Number		Weighted Average		Aggregate		Weighted Average Grant Date
	of shares		Exercise Price		Intrinsic Value		Fair Value
Outstanding at beginning of year		-	$	-			$	-
Granted		54,216		6.64				3.44
Exercised		-		-				-
Expired/Cancelled		-		-				-
Outstanding at end of year		54,216	$	6.64	$	-	$	3.44
Exercisable at end of year		-	$	-	$	-	$	-

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 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 $5.39 market value per share of Shore Bancshares, Inc.’s common stock at December 31, 2012. Since there were no options exercised during 2012 or 2011, there was no intrinsic value associated with stock options exercised and no cash received on exercise of options. No stock options vested in 2012 or 2011. At December 31, 2012, the weighted average remaining contract life of options outstanding was 9.2 years.