12.STOCK-BASED COMPENSATION

At December 31, 2016, the Company had two stock-based compensation plans, which are described below. The Company accounts for the fair value of its grants under these plans in accordance with ASC Topic 718, “Compensation – Stock Compensation”. The compensation cost charged against income for those plans was $380 thousand, $318 thousand, and $293 thousand for 2016, 2015, and 2014, respectively, and is included in “Salaries and Employee Benefits” in the Company’s Consolidated Statements of Income. All stock option and restricted stock expense is recorded on a straight-line basis over the expected vesting term. In addition, expenses for director options and restricted stock were recognized to reflect $98 thousand, $106 thousand, and $83 thousand in 2016, 2015, and 2014, respectively, as part of “Other” expense in the Company’s Consolidated Statements of Income.

2009 Long-Term Equity Incentive Plan

Under the Company’s 2009 Long-Term Equity Incentive Plan (the “2009 Plan”) and, prior to the adoption of the 2009 Plan by shareholders in April 2009, under the Company’s 1999 Employee Stock Option and Long-Term Incentive Plan (the “1999 Plan” and together with the 2009 Plan, the “Equity Plans”), the Company has granted options or restricted stock to officers, directors and key employees of the Company and its subsidiaries. Under the Equity Plans, the Company was authorized to issue up to 629,796 shares of common stock. Under the Equity Plans, the exercise price of each option is not to be less than 100% of the market price of the Company’s stock on the date of grant and an option’s maximum term is ten years. If available, the Company normally issues shares out of its treasury for any options exercised or restricted shares issued. The options have vesting schedules from 12 months through 4 years. At December 31, 2016, there were a total of 137,395 shares available for grant under the 2009 Plan. The Company may no longer make grants under the 1999 Plan.

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:


	2016			2015			2014
Dividend Yield		2.88	%		2.93	%		2.70	%
Expected Life (years)		6.77			6.36			6.36
Expected Volatility		17.25	%		19.62	%		20.76	%
Risk-free Interest Rate		1.78	%		1.90	%		2.11	%
Weighted Average Fair Value	$	3.05		$	3.49		$	3.64

The Company used historical volatility calculated using daily closing prices for its common stock over periods that match the expected term of the option granted to estimate the expected volatility. The risk-free interest rate assumption was based upon U.S. Treasury yields appropriate for the expected term of the Company's stock options based upon the date of grant. The expected dividend yield was based upon the Company's recent history of paying dividends. The expected life was based upon the options’ expected vesting schedule and historical exercise patterns.

Stock options activity for 2016 was as follows:



	Options		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (years)		Aggregate Intrinsic Value (in thousands)
Balance, December 31, 2015		214,295	$	17.30
Granted		49,550		25.00
Exercised		(6,050)		16.60
Expired		(645)		22.93
Forfeited		(5,448)		24.49
Balance, December 31, 2016		251,702	$	18.66		5.75	$	3,229

Exercisable, December 31, 2016		164,390	$	15.73		4.27	$	2,585

Future compensation cost expected to be expensed over the weighted average remaining contractual term for remaining outstanding options is $204 thousand. The unrecognized compensation cost is scheduled to be recognized as follows:



	(in thousands)
2017	$	86
2018		70
2019		41
2020		7

Restricted stock award activity for 2016 was as follows:



	Shares	Weighted Average Grant Date Fair Value
Balance, December 31, 2015	33,690	$	21.98
Granted	22,308		24.89
Vested	(14,629)		22.09
Forfeited	(2,201)		24.41
Balance, December 31, 2016	39,168	$	23.68

As of December 31, 2016, there was $627 thousand in unrecognized compensation cost related to restricted share-based compensation arrangements granted under the Equity Plans. The unrecognized compensation cost is scheduled to be recognized as follows:



	(in thousands)
2017	$	270
2018		211
2019		124
2020		22

During fiscal years 2016, 2015, and 2014, the following activity occurred under the Company’s plans:




	2016		2015		2014
	(in thousands)
Total intrinsic value of stock options exercised	$	92	$	409	$	287
Total fair value of restricted stock awards vested	$	349	$	287	$	273

Employee Stock Purchase Plan

The Company also maintains the Evans Bancorp, Inc. Employee Stock Purchase Plan (the “Purchase Plan”). As of December 31, 2016, there were 122,554 shares of common stock available to issue to full-time employees of the Company and its subsidiaries, nearly all of whom are eligible to participate. Under the terms of the Purchase Plan, employees can choose each year to have up to 15% of their annual base earnings withheld to purchase the Company’s common stock. The Company grants options on January 1 and July 1 of each year during the term of the Purchase Plan. The purchase price of the stock is 85% of the lower of its price on the grant date or the exercise date. Under the Purchase Plan, the Company issued 10,596, 10,574, and 12,821 shares to employees in 2016, 2015, and 2014, respectively. Compensation cost is recognized for the fair value of the employees’ purchase rights, which was estimated using the Black-Scholes model with the following assumptions:


	2016			2015			2014
Dividend Yield		2.93	%		3.01	%		2.95	%
Expected Life (years)		0.50			0.50			0.50
Expected Volatility		22.97	%		16.47	%		22.41	%
Risk-free Interest Rate		0.43	%		0.19	%		0.08	%
Weighted Average Fair Value	$	7.71		$	6.92		$	6.56

The compensation cost that has been charged against income for the Purchase Plan was $75 thousand, $71 thousand, and $89 thousand for 2016, 2015, and 2014, respectively.