Stock Based Compensation

The Company's current stock-based compensation plan is the Union Bankshares, Inc. 2014 Equity Incentive Plan. Under the 2014 Equity Plan, 50,000 shares of the Company’s common stock are available for equity awards of incentive stock options, nonqualified stock options, restricted stock and RSUs to eligible officers and (except for awards of incentive stock options) nonemployee directors. Shares available for issuance of awards under the 2014 Equity Plan consist of unissued shares of the Company’s common stock and/or shares held in treasury.

During the year ended December 31, 2016 the following awards and contingent awards were made to eligible officers under the 2014 Equity Plan:

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A total of 5,445 RSUs were granted at a fair value of $27.91 per share, based on the closing market price of the Company's common stock on December 31, 2015, the earned date of the award. Each RSU represents the right to receive one share of the Company's common stock upon satisfaction of applicable vesting conditions. 50% of the RSUs awarded were in the form of Time-Based RSUs, which vest over three years, approximately one-third per year on the anniversary of the earned date beginning in 2016; and 50% of the RSUs awarded were in the form of Performance-Based RSUs, which are subject to both performance and time based vesting conditions. The Performance-Based conditions were satisfied for 2015 and vesting of the Performance-Based RSUs occurs over two years, approximately one-half per year on the anniversary of the earned date beginning in 2016. Prior to vesting, the RSUs do not earn dividends or dividend equivalents, nor do they bear any voting rights. The general terms of the awards were described in a 2015 Award Summary, with final awards, including related 2015 performance results and December 31, 2015 stock price, certified by the Board of Directors during the first quarter of 2016. Unrecognized compensation expense related to the unvested RSUs as of December 31, 2016 was $86 thousand.

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A total of 4,456 contingent RSUs were provisionally granted in 2016 at a fair value of $29.10 per share. An estimated number of contingent RSUs provisionally granted was based on the closing market price of the Company's common stock on the March 16, 2016 grant date and on target payout amounts as detailed in the 2016 Award Plan Summary adopted by the Board of Directors. As with the 2015 grants, one half is in the form of Time-Based RSUs and one-half is in the form of Performance-Based RSUs. The actual number of RSUs granted (if any) will be determined as of the December 31, 2016 earned date of the award based on the market price of the Company's common stock on December 31, 2016 and on the actual level of attainment of performance based conditions as certified by the Board of Directors during the first quarter of 2017. The contingent RSUs were granted on substantially the same terms and conditions as the RSUs granted under the 2015 Award Plan Summary. As of December 31, 2016 the estimated unrecognized compensation expense related to the contingent unvested RSUs, based on the closing market price of the Company's stock on the grant date of March 16, 2016 was $130 thousand.

The 2014 Equity Plan replaced the Company's 2008 ISO Plan. As of December 31, 2016, 4,000 options granted under the 2008 ISO Plan remained outstanding and exercisable, with the last of such options expiring in December 2020.

The exercise price of outstanding options under both plans is equal to the market price of the stock at the date of grant; therefore, the intrinsic value of the options at the date of the grant is $0. All outstanding options have a one year requisite service period, vest after one year, and have a seven year contractual term. There were no options granted in 2016 or 2015, and 6,000 options were granted in 2014 under the 2014 Equity Plan. The compensation cost charged against income for stock options issued under the plans was $0 for 2016, $35 thousand for 2015, $20 thousand for 2014.

The fair value of each option award is estimated on the date of grant using a Black-Scholes based option valuation model. The estimated weighted average grant date fair values for options granted during 2014 and the weighted average assumptions used are presented in the following table:



	2014
Fair value per share	$	5.84
Expected volatility	23.91		%
Expected dividends	4.50		%
Risk free interest rate	1.61		%
Expected term (in years)	5.00
Vesting periods (in years)	1.00

Expected volatilities are based on historical volatilities of the market value of the Company's stock, and, possibly, other factors. The Company uses historical data to estimate option exercise and employee termination within the valuation model. The expected term of options granted is estimated from past exercise activity, and represents the period of time that granted options are expected to be outstanding. The risk free interest rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve at the time of grant. The expected dividend rate is estimated by annualizing the last dividend paid, divided by the closing price of the Company's stock on the grant date of the option.

The following summarizes the option activity under the 2014 Equity Plan for the year ended December 31, 2016:



	Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term	Period End Aggregate Intrinsic Value
Outstanding at January 1, 2016	6,000		$	24.00
Exercised	(1,500	)	24.00
Forfeited/expired	—		—
Outstanding at December 31, 2016	4,500		$	24.00	4.96	—
Exercisable at December 31, 2016	4,500		$	24.00	4.96	—

The following summarizes the option activity under the 2008 ISO Plan for the year ended December 31, 2016:



	Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term	Period End Aggregate Intrinsic Value
Outstanding at January 1, 2016	5,000		$	21.04
Exercised	(1,000	)	19.60
Forfeited/expired	—		—
Outstanding at December 31, 2016	4,000		$	21.40	3.68	—
Exercisable at December 31, 2016	4,000		$	21.40	3.68	—

The following summarizes information regarding the proceeds received by the Company from the exercise of options during each of the last three years:



	2016		2015		2014
	(Dollars in thousands, except per share data)
Proceeds received	$	56	$	53	$	39
Number of shares exercised	2,500		2,500		2,010
Weighted average price per share	$	22.24	$	21.04	$	19.60
Total intrinsic value of options exercised	$	21	$	9	$	10

As of December 31, 2016, there was no unrecognized compensation cost as all options under both plans were fully vested and exercisable.