14. Stock-Based Compensation

At the 2012 annual meeting of shareholders, the Company's shareholders approved the Northeast Bancorp Amended and Restated 2010 Stock Option and Incentive Plan (the "Restated Plan"). The Restated Plan amends and restates the Northeast Bancorp 2010 Option and Incentive Plan (the "2010 Plan"). The key material differences between the 2010 Plan and the Restated Plan are:


	•	The maximum number of shares of common stock to be issued under the Restated Plan is increased by 600,000 shares, from 810,054 shares to 1,410,054 shares;
	•	The method by which shares subject to previously granted awards are added back to the Restated Plan has been revised so that the only shares added back to the Restated Plan are those subject to awards that are forfeited, canceled or otherwise terminated. The following shares shall not be added back to the Restated Plan: (i) shares tendered or held back upon exercise of an option or settlement of an award to cover the exercise price or tax withholding, and (ii) shares subject to a stock appreciation right that are not issued in connection with the stock settlement of the stock appreciation right upon exercise thereof.
	•	Minimum vesting periods are required for grants of restricted stock, restricted stock units and performance share awards; and
	•	The term of the Restated Plan will now expire on November 28, 2022, while grants of incentive options under the Restated Plan may be made until September 21, 2022.

A summary of stock option activity for the year ended June 30, 2015 follows:

	Shares			Weighted Average Exercise Price
Outstanding at beginning of year		1,143,195		$	12.44
Granted		20,000			9.19
Exercised		—			—
Forfeited		(103,474	)		10.77

Outstanding at end of year		1,059,721			12.58


Exercisable		305,595			13.81

	Shares			Weighted Average Grant Date Fair Value
Exercisable, beginning of year		223,706		$	3.74
Vested		95,570			3.15
Exercised		—			—
Forfeited or expired		(13,681	)		3.85

Exercisable, end of year		305,595			3.55

The fair values of options granted have been estimated on the date of grant using the Black-Scholes option-pricing model using the following weighted-average assumptions.

	Year Ended June 30,
	2015			2014
Assumptions:
Dividend yield		0.43	%		3.85	%
Expected life		7.0 years			7.0 years
Expected volatility		30.30	%		30.38	%
Risk-free interest rate		2.03	%		2.14	%
Weighted average fair value per option	$	3.11		$	1.95

The expected volatility is based on historical volatility. The risk-free interest rate is for periods within the expected life of the awards, and is based on the U.S. Treasury yield curve in effect at the time of the grant. The expected life is based on expected exercise experience.

During the year ended June 30, 2013, certain provisions of outstanding stock options with market-based conditions were modified. The options, consisting of 237,616 shares, were granted to three executives of the Company in December of 2010 and were to vest in three equal tranches upon the Company's common stock reaching applicable hurdle prices over specified time periods. The applicable hurdle price varies depending on the number of years that have elapsed since the date of grant. With respect to the first tranche, the applicable hurdle price was $27.86 for the period from December 29, 2010 through December 29, 2015; $31.34 for the period from December 29, 2015 through December 29, 2016; and $34.83 for the period from December 29, 2016 through December 29, 2017. With respect to the second tranche, the hurdle price was $31.34 for the period from December 29, 2010 through December 29, 2016; and $34.83 for the period from December 29, 2016 through December 29, 2017. With respect to the third tranche, the hurdle price was $34.83 for the period from December 29, 2010 through December 29, 2017.

The Company's Compensation Committee approved amending the hurdle prices as follows:

With respect to the first tranche, the applicable hurdle price is $16.43 for the period from December 29, 2010 through December 28, 2015; $18.58 for the period from December 29, 2015 through December 28, 2016; and $20.77 for the period from December 29, 2016 through December 28, 2017. With respect to the second tranche, the hurdle price is $18.58 for the period from December 29, 2010 through December 28, 2016; and $20.77 for the period from December 29, 2016 through December 28, 2017. With respect to the third tranche, the hurdle price is $20.77 for the period from December 29, 2010 through December 28, 2017.

Except as modified by this amendment, all other terms and conditions of each of the outstanding performance-based stock options, including the option exercise price of $13.93 per share, remain in full force and effect.

The incremental expense resulting from the modification was calculated as the difference between the stock option's fair value immediately before and after the modification using the Hull-White option pricing model and the following weighted-average assumptions:

Assumptions:
Dividend yield		3.72%
Expected life		7.8 years
Expected volatility		28.45% - 32.84%
Risk-free interest rate		0.07% - 1.54%
Incremental weighted average fair value per option		$0.52

The following table summarizes information about stock options outstanding at June 30, 2015.

Options Outstanding								Options Exercisable
(Dollars in thousands, except per share data)
Weighted Average Exercise Price		Number		Weighted Average Remaining Life		Aggregate Intrinsic Value		Weighted Average Exercise Price		Number		Weighted Average Remaining Life		Aggregate Intrinsic Value
	9.30		20,000		8.64 years		13		9.30		—		8.64 years		—
	9.38		295,176		7.59		168		9.38		13,224		7.59		8
	9.39		10,000		9.08		6		9.39		—		9.08		—
	12.63		32,500		6.58		—		12.63		10,833		6.58		—
	13.93		540,035		5.50		—		13.93		216,734		5.50		—
	14.52		162,010		5.50		—		14.52		64,804		5.50		—

	12.58		1,059,721		6.21		187		13.81		305,595		6.21		8

A summary of restricted stock activity for the year ended June 30, 2015 follows:

	Shares			Weighted Average Grant Date Fair Value
Unvested at beginning of period		55,814		$	9.33
Granted		174,000			9.35
Vested		(1,055	)		9.33
Forfeited		(16,749	)		9.39

Unvested at end of period		212,010			9.34

At June 30, 2015 and 2014, the Company has accrued a liability of $48 thousand representing the maximum cash payment for performance-based stock appreciation rights ("SARs") granted in the fiscal year ended June 30, 2011. The SARs expire in December of 2020.

Stock-based compensation totaled $705 thousand for the year ended June 30, 2015 and $686 thousand for the year ended June 30, 2014. The tax benefit related to stock-based compensation expensed totaled $253 thousand for the year ended June 30, 2015 and $258 thousand for the year ended June 30, 2014. The estimated amount and timing of future pre-tax stock-based compensation expense to be recognized are as follows.

	Year Ending June 30,
	2016		2017		2018		2019		2020		Total
	(Dollars in thousands)
Stock options	$	331	$	185	$	76	$	12	$	1	$	605
Restricted stock		400		400		363		312		84		1,559

	$	731	$	585	$	439	$	324	$	85	$	2,164