Note 15: Stock-Based Compensation Plans

On October 3, 2000, the shareholders of the Company approved the Bar Harbor Bankshares and Subsidiaries Incentive Stock Option Plan of 2000 (ISOP) for its officers and employees, which provided for the issuance of up to 450,000 shares of common stock. The purchase price of the stock covered by each option must be at least 100% of the trading value on the date such option was granted. Vesting terms ranged from three to seven years. According to the ISOP no option shall be granted after October 3, 2010, ten years after the effective date of the ISOP.

On May 19, 2009, the shareholders of the Company approved the adoption of the 2009 Bar Harbor Bankshares and Subsidiaries Equity Incentive Plan (the "2009 Plan") for employees and directors of the Company and its subsidiaries. Subject to adjustment for stock splits, stock dividends, and similar events, the total number of shares of common stock that can be issued under the 2009 Plan over the 10 year period in which the plan will be in place is 262,500 shares of common stock, provided that no more than 112,500 shares of such stock can be awarded in the form of restricted stock or restricted stock units, as further described in the 2009 Plan. The 2009 Plan is to be administered by the Company's Compensation Committee. All employees and directors of the Company and its subsidiaries are eligible to participate in the 2009 Plan, subject to the discretion of the administrator and the terms of the 2009 Plan. The maximum stock award granted to one individual may not exceed 30,000 shares of common stock (subject to adjustment for stock splits, and similar events) for any calendar year. No grants were made after May 18, 2015 for this plan.

On May 19, 2015, the shareholders of the Company approved the adoption of the 2015 Bar Harbor Bankshares and Subsidiaries Equity Incentive Plan (the "2015 Plan") for employees and directors of the Company and its subsidiaries. Subject to adjustment for stock splits, stock dividends, and similar events, the total number of shares of common stock that can be issued under the 2015 Plan over the 10 year period in which the plan will be in place is 280,000 shares of common stock. The 2015 Plan is to be administered by the Company's Compensation Committee. All employees and directors of the Company and its subsidiaries are eligible to participate in the 2015 Plan, subject to the discretion of the administrator and the terms of the 2015 Plan. The maximum stock award granted to one individual may not exceed 20,000 shares of common stock (subject to adjustment for stock splits, and similar events) for any calendar year. According to the 2015 Plan no shares shall be granted after May 19, 2019, ten years after the effective date of the 2015 Plan. As of December 31, 2016 there were 192,110 shares available for grant under this plan.

In April of 2013, the Board of Directors voted a Long Term Incentive Program for senior management members. The program is designed to be made up of a series of three year rolling plans utilizing the shares made available through the approved equity plans. Grants may be given in time vested restricted stock awards, time vested restricted stock units or performance vested restricted stock units, or a combination of these types of grants.

Compensation expense recognized in connection with the stock based compensation plans are presented in the following table for the years ended December 31, 2016, 2015, and 2014:

		2016		2015		2014

Stock options and restricted stock awards	$	543	$	306	$	296
Performance stock units		304		376		173
Restricted stock units		431		134		61
Total compensation expense	$	1,278	$	816	$	530

There were no stock option grants during 2016. The fair value of options was estimated at the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions for stock option grants during the years ended December 31:

		2015			2014

Risk free interest rate		1.16	%		1.24	%
Expected market volatility factor for the Company's stock		41.22	%		29.38	%
Dividend yield		6.00	%		6.20	%
Expected life of the options (years)		6.0			6.2
Options granted		83,513			45,000
Estimated fair value of options granted	$	9.73		$	5.00

The expected life of the grants is based on the simplified method, which calculated the expected life based on the midpoint of the term of the award and the vesting period. The Company uses the simplified method because it does not have sufficient option exercise data to provide a reasonable basis upon which to estimate the expected term. The dividend yield is based on estimated future dividend yields. The risk-free interest rates are based on the United States Treasury yield curve in effect at the time of the grant, with maturities approximating the vesting period of the stock option grants. The expected market price volatility for the grants during 2015 was determined by using the Company's historical stock price volatility on a daily basis during the three year period ending December 31, 2015, consistent with the vesting periods of the 2015 option grants.

Stock Option and Restricted Stock Awards Activity: A summary combined status of the stock option and restricted stock awards as of December 31, 2016 and 2015, and changes during the year then ended is presented below:

	Number of			Weighted		Aggregate
	Stock Options			Average		Intrinsic
Stock Options	Outstanding			Exercise Price		Value
Outstanding at January 1, 2016	229,435		$	26.33
Granted	--			--
Exercised	(56,726	)		24.15
Forfeited	(14,874	)		27.73
Outstanding at December 31, 2016	157,835		$	26.98	$	3,212

Ending vested and expected to vest December 31, 2016	156,467		$	27.06	$	3,172
Exercisable at December 31, 2016	60,538		$	24.12	$	1,405

	Number of			Weighted		Aggregate
	Stock Options			Average		Intrinsic
Stock Options	Outstanding			Exercise Price		Value
Outstanding at January 1, 2015	240,308		$	22.21
Granted	83,513			33.27
Exercised	(55,642	)		21.69
Forfeited	(38,744	)		22.37
Outstanding at December 31, 2015	229,435		$	26.33	$	1,860

Ending vested and expected to vest December 31, 2015	226,219		$	26.45	$	1,807
Exercisable at December 31, 2015	68,104		$	21.30	$	895

	Number of			Weighted
	Restricted Stock			Average Grant
	Awards			Date Fair
Restricted Stock Awards	Outstanding			Value
Outstanding at January 1, 2016	--		$	---
Awarded	3,460			43.28
Released	(3,460	)		43.28
Forfeited	--			--
Outstanding at December 31, 2016	--		$	--

	Number of			Weighted
	Restricted Stock			Average Grant
	Awards			Date Fair
Restricted Stock Awards	Outstanding			Value
Outstanding at January 1, 2015	--		$	--
Awarded	2,860			34.81
Released	(2,860	)		34.81
Forfeited	--			--
Outstanding at December 31, 2015	--		$	--

The intrinsic value of the options exercised and cash received by the Company for options exercised for the years ended December 31, 2016, 2015, and 2014, was approximately $1,315 and $1,370, $708 and $1,207, $390 and $626, respectively.

The tax benefit received related to the exercise of options in 2016, 2015 and 2014, was $198, $159 and $43, respectively.

As of December 31, 2016, there was approximately $249 of unrecognized compensation cost related to unvested stock option awards, net of estimated forfeitures. This amount is expected to be recognized as expense over the next six years, with a weighted average recognition period of 1.5 years.

Performance Stock Units: During 2016, performance stock unit awards were granted to certain executive officers providing the opportunity to earn shares of common stock of the Company ranging from zero to 13,563 shares, based on the Company's performance compared to peers. The performance shares granted had a weighted average fair value of $31.52 at the date of grant, and will be earned over a three year performance period. The current assumption based on the most recent peer group information results in the shares earned at approximately 149% of the target 9,310 shares, or 13,933 shares.

During 2015, performance stock unit awards were granted to certain executive officers providing the opportunity to earn shares of common stock of the Company ranging from zero to 13,813 shares, based on the Company's performance compared to peers. The performance shares granted had a weighted average fair value of $32.20 at the date of grant, and will be earned over a three year performance period. The current assumption based on the most recent peer group information results in the shares earned at 150% of the target 9,207 shares, or 13,813 shares.

The following table summarizes performance units as of December 31, 2016 and 2015:

	Number		Weighted
	of Performance		Average Grant
	Stock Units		Date
Performance Stock Units	Outstanding		Fair Value

Outstanding at January 1, 2016	24,349	$	27.72
Granted	9,310		31.52
Vested	13,933		24.14
Forfeited	2,415		30.57
Outstanding at December 31, 2016	17,311	$	32.11

	Number		Weighted
	of Performance		Average Grant
	Stock Units		Date
Performance Stock Units	Outstanding		Fair Value

Outstanding at January 1, 2015	17,895	$	25.77
Granted	9,207		32.20
Vested	--		--
Forfeited	2,753		30.00
Outstanding at December 31, 2015	24,349	$	27.72

Restricted Stock Units: During 2016 and 2015, restricted stock units were granted to certain executive officers and senior vice presidents. The restricted shares granted were valued at between $32.00 and $35.25 the fair market value at the date of grant and vest annually over three years.

The following table summarizes restricted stock units at target as of December 31, 2016 and 2015:

	Number of		Weighted Average
	Restricted Stock		Grant Date
Restricted Stock Units	Units Outstanding		Fair Value

Outstanding at January 1, 2016	25,392	$	30.95
Granted	11,663		34.80
Vested	8,114		29.00
Forfeited	2,249		32.15
Outstanding at December 31, 2016	26,692	$	33.12

	Number of		Weighted Average
	Restricted Stock		Grant Date
Restricted Stock Units	Units Outstanding		Fair Value

Outstanding at January 1, 2015	13,178	$	26.42
Granted	21,755		32.66
Vested	6,040		27.43
Forfeited	3,501		30.58
Outstanding at December 31, 2015	25,392	$	30.95

As of December 31, 2016, there was $1,183 of total unrecognized compensation cost related to nonvested restricted stock units and performance stock units granted under the Plans. That cost is expected to be recognized over a weighted average period of 1.8 years.