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 (the “ISOP”) for its officers and employees, which provided for the issuance of up to 1,012,500 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 393,750 shares of common stock, provided that no more than 168,750 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 45,000 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 pursuant to 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 420,000 shares of common stock. The 2015 Plan is 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 30,000 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, 2017 there were 185,223 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, 2017, 2016, and 2015:



(in thousands)	2017		2016		2015
Stock options and restricted stock awards	$	399	$	543	$	306
Performance stock units	290		304		376
Restricted stock units	585		431		134
Total compensation expense	$	1,274	$	1,278	$	816

The total tax benefit recognized associated with stock options and restricted stock awards for the years ended 2017, 2016 and 2015 were $308 thousand, $274 thousand and $135 thousand, respectively. The total tax benefit recognized associated with restricted stock units and performance stock units for the years ended 2017, 2016 and 2015 was $423 thousand, $320 thousand, and $214 thousand, respectively.

There were no stock option grants during 2017 and 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:



	2015
Risk free interest rate	1.16		%
Expected market volatility factor for the Company's stock	41.22		%
Dividend yield	3.07		%
Expected life of the options (years)	6.0
Options granted	125,269
Estimated fair value of options granted	$	6.49

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, 2017 and 2016, and changes during the year then ended is presented below:



Stock Options	Number of Stock Options Outstanding		Weighted Average Exercise Price		Aggregate Intrinsic Value
Outstanding at January 1, 2017	236,763		$	17.99
Granted	—		—
Exercised	(55,725	)	15.19
Forfeited	(11,117	)	17.38
Outstanding at December 31, 2017	169,921		$	18.95	$	1,370

Ending vested and expected to vest December 31, 2017	169,921		$	18.95	$	1,370
Exercisable at December 31, 2017	100,317		$	18.66	$	838



Stock Options	Number of Stock Options Outstanding		Weighted Average Exercise Price		Aggregate Intrinsic Value
Outstanding at January 1, 2016	344,159		$	17.56
Granted	—		—
Exercised	(85,085	)	16.10
Forfeited	(22,311	)	18.49
Outstanding at December 31, 2016	236,763		$	17.99	3,213

Ending vested and expected to vest December 31, 2016	234,709		$	18.04	3,173
Exercisable at December 31, 2016	90,807		$	16.08	1,406



Restricted Stock Awards	Number of Restricted Stock Awards Outstanding		Weighted Average Grant Date Fair Value
Outstanding at January 1, 2017	—		—
Awarded	8,004		$	29.96
Vested	(8,004	)	29.96
Forfeited	—		—
Outstanding at December 31, 2017	—		$	—



Restricted Stock Awards	Number of Restricted Stock Awards Outstanding		Weighted Average Grant Date Fair Value
Outstanding at January 1, 2016	—		—
Awarded	5,190		$	28.86
Vested	(5,190	)	28.86
Forfeited	—		—
Outstanding at December 31, 2016	—		$	—

The intrinsic value of the options exercised for the years ended December 31, 2017, 2016, and 2015, was approximately $748 thousand, $760 thousand and $708 thousand, respectively.

As of December 31, 2017, there was approximately $64 thousand 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 1.06 years.

Performance Stock Units

During 2017, 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 19,973 shares, based on the Company’s performance compared to peers. The performance shares granted had a weighted average fair value of $26.74 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 20.71% of the target 13,318 shares, or 2,758 shares.

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 20,949 shares, based on the Company’s performance compared to peers. The performance shares granted had a weighted average fair value of $21.02 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 129.86% of the target 13,969 shares, or 18,140 shares.

The following table summarizes performance units at target as of December 31, 2017 and 2016:



Performance Stock Units	Number of Performance Stock Units Outstanding		Weighted Average Grant Date Fair Value
Outstanding at January 1, 2017	34,246		$	21.25
Awarded	17,711		26.74
Vested	(15,121	)	18.84
Forfeited	(3,209	)	21.51
Outstanding at December 31, 2017	33,627		$	25.21



Performance Stock Units	Number of Performance Stock Units Outstanding		Weighted Average Grant Date Fair Value
Outstanding at January 1, 2016	36,525		$	18.49
Awarded	20,351		21.02
Vested	(20,899	)	16.09
Forfeited	(1,731	)	22.40
Outstanding at December 31, 2016	34,246		$	21.25

Restricted Stock Units

During 2017 and 2016, restricted stock units were granted to certain executive officers and senior vice presidents. The restricted shares granted were valued between $26.86 and $30.93 for 2017 and between $22.95 and $24.57 for 2016 the fair market value at the date of grant and vest annually over three years.

The following table summarizes restricted stock units activity in 2017 and 2016:



Restricted Stock Units	Number of Restricted Stock Units Outstanding		Weighted Average Grant Date Fair Value
Outstanding at January 1, 2017	40,681		$	22.03
Granted	57,561		28.48
Vested and exercised	(12,667	)	21.49
Forfeited	(11,407	)	25.43
Outstanding at December 31, 2017	74,168		$	26.60



Restricted Stock Units	Number of Restricted Stock Units Outstanding		Weighted Average Grant Date Fair Value
Outstanding at January 1, 2016	38,098		$	20.64
Granted	17,500		23.20
Vested and exercised	(12,174	)	19.34
Forfeited	(2,743	)	22.10
Outstanding at December 31, 2016	40,681		$	22.03

As of December 31, 2017, there was $1.7 million 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 2.1 years.