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 December 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 December 31, 2020 are approximately 435,674. 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 was $2.9 million, $2.7 million and $1.9 million for the years ended December 31, 2020, 2019 and 2018 respectively.

Activity under the Company’s options for the year ended December 31, 2020 was as follows:

	Number of Stock Options		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value
Outstanding as of December 31, 2019		73,426	$	8.19		0	$	0
Granted		-		-
Exercised		(35,413)		7.28
Forfeited/cancelled/expired		-		-
Outstanding as of December 31, 2020		38,013		9.04		1.2	$	409,000

Exercisable as of December 31, 2020		38,013	$	9.04		1.2	$	409,000

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 December 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 December 31, 2020. This amount changes based on the fair market value of the Company’s stock.

Activity under the Company’s restricted shares for year ended December 31, 2020 was as follows:

	Nonvested Shares		Weighted- Average Grant Date Fair Value
Nonvested as of December 31, 2019		75,351	$	21.61
Granted		90,200		17.11
Vested		(52,014)		21.32
Forfeited/cancelled/expired		(423)		23.65
Nonvested December 31, 2020		113,114	$	18.15

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Table of Contents

CONNECTONE BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 18 – Stock-Based Compensation – (continued)

As of December 31, 2020, there was approximately $1.3 million of total unrecognized compensation cost related to nonvested restricted shares granted. The cost is expected to be recognized over a weighted average period of 1.3 years.

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

	Units (expected)		Units (maximum)		Weighted Average Grant Date Fair Value
Unearned as of December 31, 2019		90,097		0	$	23.85
Awarded		82,579				10.77
Change in estimate		12,297				29.61
Vested shares		(37,337)				22.75
Unearned as of December 31, 2020		147,636		206,744	$	17.29

As of December 31, 2020, the specific number of shares related to performance units that were expected to vest was 147,636 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. As of December 31, 2020, the maximum number of shares related to performance units that ultimately could vest if performance targets were exceeded is 206,744. During the year ended December 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 year ended December 31, 2020 were 22,402 shares. As of December 31, 2020, compensation cost of approximately $1.0 million related to non-vested performance units not yet recognized is expected to be recognized over a weighted-average period of 1.7 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:

	Units (expected)		Weighted Average Grant Date Fair Value
Unearned as of December 31, 2019		73,069	$	23.62
Awarded		123,870		10.77
Vested shares		(27,626)		24.53
Unearned as of December 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 year ended December 31, 2020, 27,626 shares vested. A total of 11,085 shares were netted from the vested shares to satisfy employee tax obligations. The net shares issued from vesting of restricted stock units during the year ended December 31, 2020 were 16,541 shares. As of December 31, 2020, compensation cost of approximately $1.5 million related to non-vested restricted stock units, not yet recognized, is expected to be recognized over a weighted-average period of 1.8 years.