The Company’s stockholders approved the 2017 Equity Compensation Plan (“the Plan”) on May 23, 2017. The Plan eliminates all remaining issuable shares under previous plans and is the only outstanding plan as of March 31, 2020. The maximum number of shares of common stock or equivalents which may be issued under the Plan, is 750,000. Grants under the Plan can be in the form of stock options (qualified or non-qualified), restricted shares, restricted share units or performance units. Shares available for grant and issuance under the Plan as of March 31, 2020 are approximately 361,592. The Company intends to issue all shares under the Plan in the form of newly issued shares.

Restricted stock, options and restricted stock units typically have a three-year vesting period starting one year after the date of grant with one-third vesting each year. The options generally expire ten years from the date of grant. Restricted stock granted to new employees and board members may be granted with shorter vesting periods. Grants of performance units typically have a cliff vesting after three years or upon a change of control. All issuances are subject to forfeiture if the recipient leaves or is terminated prior to the awards vesting. Restricted shares have the same dividend and voting rights as common stock, while options, performance units and restricted stock units do not.

All awards are issued at the fair value of the underlying shares at the grant date. The Company expenses the cost of the awards, which is determined to be the fair market value of the awards at the date of grant, ratably over the vesting period. Forfeiture rates are not estimated but are recorded as incurred. Stock-based compensation expense for the three months ended March 31, 2020 and March 31, 2019 was $0.5 million and $0.8 million, respectively.

Activity under the Company’s options for the three months ended March 31, 2020 was as follows:

	Number of Stock Options		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value
Outstanding at December 31, 2019	69,526		$	8.29
Granted	-			-
Exercised	(25,413	)		7.39
Forfeited/cancelled/expired	-			-
Outstanding at March 31, 2020	44,113			8.81	2.2	$	1,027,318

Exercisable at March 31, 2020	44,113		$	8.81	2.2	$	1,027,318

The aggregate intrinsic value of outstanding and exercisable options above represents the total pre-tax intrinsic value (the difference between the Company’s closing stock price on March 31, 2020 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on March 31, 2020. This amount changes based on the fair market value of the Company’s stock.

Activity under the Company’s restricted shares for the three months ended March 31, 2020 was as follows:

			Weighted-
			Average
	Nonvested		Grant Date
	Shares		Fair Value
Nonvested at December 31, 2019	76,601		$	21.58
Granted	20,684			24.07
Vested	(47,198	)		21.41
Forfeited/cancelled/expired	-			-
Nonvested March 31, 2020	50,087		$	22.77

CONNECTONE BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 9. Stock Based Compensation – (continued)

As of March 31, 2020, there was approximately $1,027,318 of total unrecognized compensation cost related to nonvested restricted shares granted. The cost is expected to be recognized over a weighted average period of 1.7 years.

A summary of the status of unearned performance unit awards and the change during the period is presented in the table below:

				Weighted
				Average Grant
	Units		Units	Date Fair
	(expected)		(maximum)	Value
Unearned at December 31, 2019	90,097			$	23.85
Awarded	82,579				10.77
Change in estimate	2,490				22.75
Vested shares	(37,337	)			22.75
Unearned at March 31, 2020	137,827		206,744	$	16.29

At March 31, 2020, the specific number of shares related to performance units that were expected to vest was 137,827, determined by actual performance in consideration of the established range of the performance targets, which is consistent with the level of expense currently being recognized over the vesting period. Should this expectation change, additional compensation expense could be recorded in future periods or previously recognized expense could be reversed. At March 31, 2020 the maximum amount of performance units that ultimately could vest if performance targets were exceeded is 206,744. During the three months ended March 31, 2020, 37,337 shares vested. A total of 14,935 shares were netted from the vested shares to satisfy employee tax obligations. The net shares issued from vesting of performance units during the three months ended March 31, 2020 were 22,402 shares.

At March 31, 2020, compensation cost of approximately $1.5 million related to non-vested performance units not yet recognized is expected to be recognized over a weighted-average period of 2.2 years.

A summary of the status of unearned restricted stock units and the changes in restricted stock units during the period is presented in the table below:

			Weighted
			Average Grant
	Units		Date Fair
	(expected)		Value
Unearned at December 31, 2019	73,069		$	23.62
Awarded	123,870			10.77
Vested shares	(27,626	)		24.54
Unearned at March 31, 2020	169,313		$	14.07

Any forfeitures would result in previously recognized expense being reversed. A portion of the shares that vest will be netted out to satisfy the tax obligations of the recipient. During the three months ended March 31, 2020, 27,626 shares vested. A total of 11,027 shares were netted out to satisfy employee tax obligations, resulting in net issuance of 16,599 shares.

At March 31, 2020, compensation cost of approximately $2.3 million related to non-vested restricted stock units, not yet recognized, is expected to be recognized over a weighted-average period of 2.4 years.