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 June 30, 2021. 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 June 30, 2021 are approximately 332,628. 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 or upon a change in control. 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 in 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 and six months ended June 30, 2021 was $1.0 million and $2.0 million, respectively. Stock-based compensation expense for the three and six months ended June 30, 2020 was $0.7 million and $1.2 million, respectively.

Activity in the Company’s options for the six months ended June 30, 2021 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, 2020	38,013		$	9.03
Granted	-			-
Exercised	(5,449	)		8.34
Forfeited/cancelled/expired	-			-
Outstanding as of June 30, 2021	32,564		$	9.15	1.0	$	554,374

Exercisable as of June 30, 2021	32,564		$	9.15	1.0	$	554,374

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 June 30, 2021 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 June 30, 2021. This amount changes based on the fair market value of the Company’s stock.

Table of Contents

CONNECTONE BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 8. Stock Based Compensation – (continued)

Activity in the Company’s restricted shares for the six months ended June 30, 2021 was as follows:

			Weighted-
			Average
	Nonvested		Grant Date
	Shares		Fair Value
Nonvested as of December 31, 2020	113,114		$	18.15
Granted	49,590			25.32
Vested	(64,149	)		16.95
Forfeited/cancelled/expired	(1,608	)		24.11
Nonvested June 30, 2021	96,947		$	22.51

As of June 30, 2021, there was approximately $1.8 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 1.4 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 as of December 31, 2020	147,636			$	17.29
Awarded	37,543				25.24
Change in estimate	17,818				20.79
Vested shares	(29,421	)			31.35
Unearned as of June 30, 2021	173,576		233,638	$	16.99

As of June 30, 2021, the specific number of shares related to performance units that were expected to vest was 173,576, 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 June 30, 2021 the maximum amount of performance units that ultimately could vest if performance targets were exceeded is 233,638. During the six months ended June 30, 2021, 29,421 shares vested. A total of 14,710 shares were netted from the vested shares to satisfy employee tax obligations. The net shares issued from vesting of performance units during the six months ended June 30, 2021 were 14,711 shares. As of June 30, 2021, compensation cost of approximately $1.7 million related to non-vested performance units not yet recognized is expected to be recognized over a weighted-average period of 1.8 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 as of December 31, 2020	169,313		$	14.07
Awarded	45,027			25.24
Vested shares	(68,916	)		16.29
Unearned as of June 30, 2021	145,424		$	16.48

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 six months ended June 30, 2021, 68,916 shares vested. A total of 34,458 shares were netted from the vested shares to satisfy employee tax obligations. The net shares issued from vesting of restricted stock units during the six months ended June 30, 2021 were 34,458 shares. As of June 30, 2021, compensation cost of approximately $2.0 million related to non-vested restricted stock units, not yet recognized, is expected to be recognized over a weighted-average period of 2.1 years.