To the Shareholders of Union Bankshares, Inc.:

The Annual Meeting of Shareholders of Union Bankshares, Inc. (the “Company”) will be held at 3:00 p.m., local time, on Wednesday, May 15, 2013,21, 2014, at the Stone Grill Restaurant meeting room located at 116 Vermont Route 15 West, Morrisville, Vermont for the following purposes:

This notice of meeting and proxy statement, the accompanying proxy card, and our 2012 Annual Report to Shareholderson Form 10-K for the year ended December 31, 2013 and a brochure containing certain additional information about the Company are available on the internet in a downloadable, printable and searchable format and may be accessed at

We are sending this proxy statement and proxy card on behalf of the Board of Directors to solicit your vote on matters to be voted on at the annual meeting of the shareholders of Union Bankshares, Inc. (the “Company,” “we” or “our”) to be held at 3:00 p.m. local time on Wednesday, May 15, 2013,21, 2014, at the Stone Grill Restaurant meeting room located at 116 Vermont Route 15 West, Morrisville, Vermont. This proxy statement and proxy card are accompanied by the Company's Annual Report to Shareholderson Form 10-K for the year ended December 31, 2012, which contains2013 containing the Company's audited consolidated financial statements and footnotes.footnotes, and a brochure containing certain additional information about the Company. These materials were first sent to our shareholders on or about April 12, 2013.15, 2014. You are cordially invited to attend the annual meeting and are asked to vote on the following proposals:

Only holders of record of the Company's $2.00 par value common stock as of the close of business on March 28, 20132014 (the record date for the meeting) will be entitled to vote at the annual meeting. On that date there were 4,455,4064,458,262 shares of the Company's common stock outstanding, and each such share is entitled to one vote on each matter presented for vote at the annual meeting.

“Street name” shareholders of common stock, who wish to vote at the annual meeting will need to obtain a proxy card from the institution that holds their shares and follow the instructions on that form. Street name shareholders are shareholders who hold their common stock indirectly, through a bank, broker or other nominee.

Yes, after you have mailed your proxy card or submitted your proxy by telephone or the internet, you may change your vote at any time before the proxy is exercised at the annual meeting. A timely-submitted later dated proxy supersedes all earlier proxies. Shareholders of record may change their vote by

“Street name” shareholders who wish to change their vote must contact the institution that holds their shares and follow the applicable procedures prescribed by the institution.

Yes, a ballot will be available at the annual meeting for shareholders of record who wish to vote in person. However, we encourage you to complete and return the enclosed proxy card, or to vote your shares by telephone or the internet, to be certain that your shares are represented and voted, even if you should be unable to attend the meeting in person. If you wish, you may revoke your previously given proxy at the annual meeting and vote by ballot instead.

If you hold your shares through a bank, broker or other nominee, you must obtain a legal proxy from the bank, broker or nominee in order to vote your shares in person at the meeting.

If you receive more than one proxy card, your shares are registered differently in more than one account (for example, “John Doe” and “J. Doe”). To ensure that all your shares are voted, you should complete, sign and return all proxy cards. We encourage you to register all your accounts in the same name and address. You may do so by contacting our transfer agent, Registrar and Transfer Co., at the following address or toll free telephone number: Registrar and Transfer Co., Attn: Investor Relations Dept., 10 Commerce Drive, Cranford, NJ 07016, (800) 368-5948. You may also contact our Assistant Corporate Secretary, JoAnn Tallman,Kristy Adams Alfieri, for assistance at the address and telephone number shown on the cover of this proxy statement.

Under stock exchange rules and brokerage industry practices, a broker may generally vote the shares it holds for customers on routine matters, but requires voting instructions from the customer on other, nonroutine matters. A broker nonvote occurs when a broker votes less than all of the shares it holds of record for any reason, including with respect to nonroutine matters where customer instructions have not been received. The “missing” votes in such a case are broker nonvotes.

The ratification of the appointment of the Company's independent auditors is considered to be a routine matter for purposes of a broker's discretionary voting authority under current stock exchange rules. Therefore, a broker may vote uninstructed shares on Proposal 43 under its discretionary authority.

The presence at the annual meeting in person or by proxy of the holders of a majority of the outstanding shares of common stock entitled to vote will constitute a quorum for the transaction of business. Proxies marked as “WITHHOLD AUTHORITY” on the election of directors (Proposal 1), "ABSTAIN" on the advisory vote to approve the compensation of the Named Executive Officers of the CompanyUnion Bankshares, Inc. 2014 Equity Incentive Plan (Proposal 2) or "ABSTAIN" on the advisory vote to approve a frequency for future advisory say-on-pay votes of the shareholders (Proposal 3) or “ABSTAIN” on the ratification of the appointment of the independent auditors (Proposal 4)3) will be treated as present at the meeting for purposes of determining a quorum.

The election of directors (Proposal 1) will require the affirmative vote of a plurality of the votes cast. That means that the nominees who receive the highest number of vote totals for the number of vacancies to be filled will be elected as directors. Therefore, a vote to WITHHOLD AUTHORITY for any nominee or the entire slate will not affect the outcome of the election unless there are more nominees than there are vacancies to be filled.

Approval of the nonbinding resolution to approve the compensation of the Company's Named Executive OfficersUnion Bankshares, Inc. 2014 Equity Incentive Plan (Proposal 2) will require that more votes be cast FOR the proposal than AGAINST. Therefore, abstentions will not affect the outcome of the vote on Proposal 2.

If any other matter should be presented at the meeting, approval of such matter would require that more votes be cast in favor than opposed. Management of the Company is not aware at this time of any matter that may be submitted to vote of the shareholders at the annual meeting other than the election of directors, approval of the compensation of the Named Executive Officers of the Company, the approval of a frequency of say-on-pay votes,2014 Equity Incentive Plan and ratification of the appointment of the independent auditors.

Because the election of directors (Proposal 1) is not the subject of an election contest and is by plurality vote, broker nonvotes at the annual meeting will not affect the outcome of the election of directors.

Broker nonvotes are not considered to be “votes cast” and therefore will not affect the outcome of the votes on approval of executive compensationthe Union Bankshares, Inc. 2014 Equity Incentive Plan (Proposal 2) or on the ratification of the appointment of independent auditors (Proposal 4), nor will they affect the outcome of the vote on the frequency of future advisory votes on executive compensation, which is determined by plurality vote.3).

Proxies are being solicited by mail. Proxies may also be solicited by directors, officers or employees of the Company or our wholly-owned subsidiary, Union Bank (“Union” or the “Bank”), in person or by telephone, facsimile, or electronic transmission. Those individuals will not receive any additional compensation for such solicitation.

The Company pays the expenses for soliciting proxies for the annual meeting. These expenses include costs relating to preparation, mailing and returning of proxies. In addition, we may reimburse banks, brokers or other nominee holders for their expenses in sending proxy materials to the beneficial owners of our common stock.

The following table shows the number and percentage of outstanding shares of the Company's common stock owned beneficially as of March 31, 20132014 by:

Except as otherwise indicated in the footnotes to the table, the named individuals possess sole voting and investment power over the shares listed.

Section 16(a) of the Securities Exchange Act of 1934 requires the Company's executive officers, directors and ten percent or more shareholders to file with the Securities and Exchange Commission (“SEC”) reports of their ownership and changes in ownership of the Company's equity securities and to furnish the Company with copies of all such reports. Based solely on its review of copies of Section 16 reports received by it, or on written representations from certain reporting persons that no filings were required for them, the Company believes that during 20122013 all Section 16(a) filing requirements applicable to its officers, directors and ten percent or more shareholders were timely complied with, except with regard to the late filed Form 5 report for Richard C. Sargent, relating to the receipt of a gift of shares during 2011 and 2012.with.

The Company's Amended and Restated Articles of Association and Bylaws provide for a Board of at least three directors, with the exact number to be fixed by the shareholders at each annual meeting. The Board of Directors currently consists of eight individuals and the Board has recommended that the number of directors be increased to nine to accommodate the nomination of Union Bank director John M. Goodrich to stand for election to the Company Board. Accordingly, the shareholders againare being asked to fix the number of directors for the ensuing year at eight,nine, or such lesser number as circumstances require should any of the nominees be unable to serve.

The table below contains certain biographical information about board nominee Goodrich and each of the eight incumbent directors standing for reelection to the Board. Additional biographical information for each of them is set forth following the table under the caption “Director Qualifications.”

Community banking is about being a good member of the communities we serve and providing quality customer service and products, while ensuring that the interests of our stockholders and employees are satisfied and our regulatory requirements are met. The Company's Board meets at least quarterly, and Union Bank's Board meets semi-monthly, to strategize, guide and monitor the activities of the Bank to achieve these goals. We rely on our directors for their strategic vision, business acumen and knowledge of local markets and opportunities. All of our directors live or work in the communities we serve and bring a unique set of talents, perspectives and backgrounds to our Board. They have been active members in organizations of their choice and interest over their lifetimes, usually in a leadership position, which has added to their reputations as respected individuals. Our incumbent directors include long-standing members of the Board who have served through many economic cycles, technological advancements, regulatory changes and periods of Company growth.

The information below summarizes the specific experience, qualifications, attributes and skills that led our Board to conclude that the individual should serve on the Company's Board. We believe that in their professional and personal lives and through their Board service, each has demonstrated sound judgment, leadership capabilities, high ethical standards and a strong commitment for service to the Company.

board member of the Vermont Economic Development Authority from 1988 until present, as a member of the Governor's Council of Economic Advisors from 2002 to 2010, and has served on many statewide councils at the Governor's request. Steve has numerous other business, community, civic and banking industry group memberships in Vermont and Franklin County. He joined the Company's Board in 2005, and is the Chair of the Audit Committee. Steve is the designated “audit committee financial expert” as defined by the regulations of the SEC, and is also the Audit Committee representative on the Company's Disclosure Control Committee. He is also a member of Union's St. Albans Advisory Board. Steve's many years of experience in Vermont community banking, including as a community bank CEO, and his financial knowledge and expertise provide an important contribution to the Board.

During 2012,2013, the Company's Board of Directors held 1413 regular meetings and no special meetings. All incumbent directors attended at least 86%92% of the aggregate of all such meetings and meetings of Board committees of which they were members. In addition to serving on the Company's Board, each of the Company's directors also serveserves on Union Bank's Board, which meets twice monthly.

The Board of Directors has determined that Board nominee Goodrich and each of the incumbent directors is independent within the meaning of The NASDAQ Stock Market LLC (NASDAQ) rules for listed companies, except Messrs. Gibbons and Silverman due to their status as a previous and current employee of the Company, respectively. Under these rules, a director is generally not considered to be independent if he or she has a material relationship with the listed company that would interfere with the exercise of independent judgment. An employment relationship with the Company or the Bank within the past three years is deemed to constitute such a material relationship.

As further described below, the Company's Board of Directors has two standing committees, the Audit Committee and the Compensation Committee. The Company does not have a standing nominating committee; rather, all independent directors on the Board serve the function of such a committee.

professional accounting certification or other comparable experience or background. Similarly, SEC rules require that at least one member of a listed company's audit committee qualify as a “financial expert.” The Board of Directors, in its discretion, and based on all of the information available to it, has determined that each of the members of the Audit Committee is independent under applicable legal standards, that each is able to read and understand fundamental financial statements and that Mr. Bourgeois, with his extensive bank management experience, including formerly as a community bank President and CEO, is “financially sophisticated” within the meaning of the NASDAQ rules and is an “audit committee financial expert” within the meaning of applicable SEC rules.

During 2012,2013, the Company's Audit Committee met 56 times. A report of the Audit Committee on its 20122013 activities is included elsewhere in this proxy statement under the caption “AUDIT COMMITTEE REPORT.”

During 2012,2013, the Compensation Committee met 1214 times. A report of the Compensation Committee on its 20122013 activities is set forth elsewhere in this proxy statement under the caption “COMPENSATION COMMITTEE REPORT.”

The independent directors have adopted a resolution addressing the process for director nominations, including recommendations by shareholders and minimum qualifications for director nominees. In accordance with these criteria, directors and director candidates should possess the following attributes:

Although the Board does not have a formal policy with regard to the consideration of diversity in identifying director nominees, the director nomination process is designed to ensure that the Board consists of members with diverse backgrounds and viewpoints, including diversity of skills and experience, with a focus on appropriate financial and other expertise relevant to the Company's business, as well as geographic location throughout our market area and community service. The goal of this process is to assemble a group of directors with deep, varied experience, sound judgment, personal integrity and commitment to the Company's success. For a discussion of the individual experience and qualifications of our directors, please refer to the section above under caption “Director Qualifications.”

In reviewing the composition of the Board and potential Board nominees, the directors are also mindful of the requirement that at least a majority of the directors must be independent under NASDAQ criteria for listed companies, and of the requirement under SEC rules and NASDAQ listed company criteria that at least one member of the Audit Committee must have the qualifications and skills necessary to be considered an “audit committee financial expert.”

The process followed by the nonemployeeindependent directors to identify and evaluate director candidates includes requests to Board members and others for recommendations, meetings from time to time to evaluate biographical information and background material relating to potential candidates and, if warranted following preliminary evaluation, interviews of selected candidates.

In addition, all nominees for election at the annual meeting who are incumbent directors of the Company and all were deemed by the nonemployeeindependent directors to meet the criteria for Board membership.

Risk is inherent in every business, particularly financial institutions. We face a number of risks, including credit risk, interest rate risk, liquidity risk, operational risk, strategic risk and reputation risk. As a one-bank holding company much of our risk management process takes place at the Bank level, where all of the Company's incumbent directors also serve on the Bank's Board. Union Bank's enterprise-wide risk management processes are designed to bring to the Board's attention material risks and to facilitate the Board's understanding and evaluation of those risks, as well as its decision-making process in overseeing how management addresses them.

The Board performs its risk oversight function in several ways. The Board establishes standards for risk management by approving policies and procedures that address and mitigate the Company's most material risks. These include policies addressing credit and investment risk, interest rate risk, liquidity risk and risks relating to Bank Secrecy Act/Anti-Money Laundering compliance. The Board also monitors, reviews and reacts to our risks through various reports presented by management, internal and external auditors and bank regulatory examiners.

In addition, Board committees, both at the Bank and Company Board level, provide risk oversight in discrete areas. In particular, at the holding company level the Audit Committee plays a central role in risk oversight in connection with the Company's accounting, auditing and financial reporting practices and its system of internal controls. A description of the Audit Committee's 20122013 activities is contained elsewhere in this proxy statement under the caption “AUDIT COMMITTEE REPORT.”

Shareholders of record wishing to recommend individuals to the independent directors for consideration as possible director nominees should submit the following information, in writing, at least ninety days before the annual meeting of shareholders:

The information should be delivered in person to the Assistant Corporate Secretary, JoAnn Tallman,Kristy Adams Alfieri, at the main office of Union Bank, 20 Lower Main Street, Morrisville, Vermont, or mailed to: Chairman, Union Bankshares, Inc., P.O. Box 1346, Morrisville, VT 05661. The independent directors will use the same criteria to evaluate an individual recommended by a shareholder as they do other potential nominees. The recommending shareholder will be notified of the action taken on his or her recommendation.

Any beneficial owner of shares who is not a shareholder of record who wishes to recommend a person for consideration as a board nominee must make appropriate arrangements with such owner's nominee (record) holder to submit the recommendation through such nominee.

During the course of evaluating a potential nominee, the independent directors may contact him or her for additional background and other information as they deem advisable, and may choose to interview the potential nominee in an effort to determine his or her qualifications under the specified criteria, as well as his or her understanding of director responsibilities. The independent directors will then determine if they will recommend the nominee to the shareholders. No person will be nominated unless he or she consents in writing to the nomination and to being named in the Company's proxy statement and agrees to serve, if elected.

The Board of Directors has adopted a policy stating that incumbent directors and nominees are expected to attend the annual meeting of shareholders, absent exigent circumstances, such as illness, family emergencies and unavoidable business travel. Last year, all eight of the incumbent directors as well as director nominee Goodrich attended the annual meeting.

Shareholders who wish to do so may communicate in writing with the Board of Directors, its committees, or individual directors regarding matters relating to the Company's business operations, financial condition or corporate governance. Any such communication should be addressed to the Board of Directors, or Board committee or individual director, as applicable, Union Bankshares, Inc., P.O. Box 1346, Morrisville, VT 05661. The correspondence will be forwarded to the addressee for review and response, as appropriate in the circumstances.

Some of the incumbent directors and executive officers of the Company, and some of the corporations and firms with which these individuals are associated, are customers of Union Bank in the ordinary course of business, or have loans outstanding from the Bank, and it is anticipated that they will continue to do business with Union Bank in the future. All loans to such persons or entities were made in the ordinary course of business, do not involve more than normal risk of collectibility or present other unfavorable features, and were made on substantially the same terms, including interest rates and collateral, as those prevailing at the same time for comparable transactions by Union Bank with unaffiliated persons, although directors and executive officers were generally allowed the lowest interest rate given to others on comparable loans.

The Company is not aware of the existence of any interlocking relationships between the senior management of the Company and that of any other company.

Election of directors is by a plurality of the votes cast.

Unless authority is withheld, proxies solicited hereby will be voted to fix the number of directors at eightnine and in favor of each of the eightnine nominees listed above to serve a one year term expiring at the 20142015 annual meeting of shareholders, or until their successors are elected and qualify. If for any reason not now known by the Company any of such nominees should not be able to serve, proxies will be voted for a substitute nominee or nominees designated by the Board of Directors, or will be voted to fix the number of directors at fewer than eightnine and for fewer than eightnine nominees, as the Board may deem advisable in its discretion.

In accordance with its written charter adopted by the Board of Directors (“Board”), the Audit Committee of Union Bankshares, Inc. (the “Company”) assists the Board in fulfilling its responsibility for oversight of the quality and integrity of the accounting, auditing and financial reporting practices of the Company.

The Audit Committee is comprised of Mr. Bourgeois (Chairman), Mr. Sweet and Mr. Sargent. The Board has determined that each member of the Committee satisfies the independence requirements of the NASDAQ listing standards, that each member of the Committee is financially literate, knowledgeable and qualified to review financial statements, and that Mr. Bourgeois has the attributes of an “audit committee financial expert” as defined by the regulations of the Securities and Exchange Commission (SEC).

In 2012,2013, the Audit Committee appointed Berry, Dunn, McNeil & Parker, LLC. (BerryDunn), an independent registered public accounting firm, to perform the audit of our consolidated financial statements for the year ended December 31, 2012.2013. The appointment was ratified by the Board and the shareholders.

The Audit Committee has reviewed and discussed both with management and with BerryDunn, the Company's audited consolidated financial statements as of and for the year ended December 31, 2012.2013. The Audit Committee has also discussed with management its assertion on the design and effectiveness of the Company's internal control over financial reporting as of December 31, 2012.2013.  Management has the responsibility for the preparation of the Company'sCompany’s consolidated financial statements and for assessing the effectiveness of internal controls over financial reporting; the independent auditorregistered public accounting firm has the responsibility for the audit of the consolidated financial statements.statements and for expressing an opinion on whether such financial statements are in conformity with generally accepted accounting principles in the United States of America. The independent auditorregistered public accounting firm reports directly to the Audit Committee, which meets with the independent auditor on a regular basis, in separate executive sessions when appropriate. In 2012,2013, the Audit Committee met fivesix times.

The Audit Committee has also discussed with the independent auditors the matters required to be communicated to the Audit Committee in accordance with professional standards, including the auditors'auditors’ judgment regarding the quality as well as the acceptability of the Company'sCompany’s accounting principles, as applied in its financial reporting. The Audit Committee has received and reviewed the written disclosures from the independent auditors required by the applicable requirements of the Public Company Accounting Oversight Board regarding the independent auditorsauditor’s communications with the Audit Committee concerning independence, and has discussed their independence with the independent auditors.auditors their independence from the Company and its management. The Committee has determined that the services performed by BerryDunn are compatible with maintaining that firm'sfirm’s independence in connection with serving as the Company'sCompany’s independent auditors. A description of the fees billed to the Company for the services of the independent auditors for 20122013 reporting is included in the proxy statement under the caption “INDEPENDENT AUDITORS.”

Relying on the reviews and discussions referred to above, the Audit Committee recommended to the Board of Directors, and the Board has approved, that the audited consolidated financial statements be included in the Company's Annual Report on Form 10-K for the year ended December 31, 20122013 for filing with the SEC.

The Compensation Committee (“the Committee”(the "Committee”) of the Board of Directors of Union Bankshares, Inc. (“the Company”(the "Company”) is made up of three nonemployee directors, Schuyler W. Sweet (Chair), John H. Steel and Cornelius (Neil) J. Van Dyke. Each of the members of the Committee was determined by the Board to be independent within the meaning of applicable listing standards of the NASDAQ stock exchange. This determination has taken into consideration new rules issued in 2013 by NASDAQ which provide guidance as to compensation earned by Committee members in fulfilling their duties, any other fees paid by the Company to the Committee members, any other affiliation with the Company or subsidiary, and all other factors specifically relevant to determining whether a Committee member has a relationship to the Company which is material to his ability to be independent from management in connection with the duties of a Committee member. 

During 2012,2013, the Company did not have any salaried employees at the holding company level, but the threetwo individuals who served as executive officers of the Company during all of 2013 and the yearone individual who was named an executive officer on May 15, 2013 received compensation in their capacity as employees of the Company'sCompany’s subsidiary, Union Bank (“Union”). The Committee'sCommittee’s recommendations on compensation for the executive officers were, therefore, implemented by the Board of Directors of Union, rather than the Company. However, throughout 2012,2013, the directors of the Company and Union were the same individuals.individuals with the exception of John M. Goodrich, who was appointed to the Union Board on March 20, 2013.

In 2011, the Committee adopted a Compensation Philosophy which is intended to provide a total compensation package that is competitive with market practice. The objectives of the compensation program are to: attract, retain and motivate talented members of senior management; provide a competitive total compensation and benefits package; reward superior performance in a manner consistent with prudent risk management; and, align management interests with those of shareholders, with the ultimate goal of enhancing overall shareholder value. This Compensation Philosophy was reviewed by the Committee in 2012December 2013 and determined to remain the objective for compensation practices and strategies.

Kenneth D. GibbonsDavid S. Silverman served as President & CEO of the Company and Union until May 16, 2012. Mr. Gibbons served as Chairman of the Company and Union Boards throughout 2012.

Marsha A. Mongeon served as Vice President, Treasurer and Chief Financial Officer of the Company and as Senior Vice President and Treasurer of Union throughout 2012.2013.

  

Salary and performance reviews for executive officers are normally done on an annual basis in January of each year. The Committee and Union'sUnion’s Board, consistent with the Compensation Philosophy, attempt to structure compensation packages for executive officers that will assist in attracting, retaining and motivating competent senior management and will provide appropriate rewards for both personal and Bank performance. Discretionary short-term incentive programs and stock-based, long-term compensation are also utilized as a means to increase senior management'smanagement’s focus on future growth in corporate earnings and shareholder value. The Committee and the Boards of Union and the Company do not believe that the compensation policies and practices of Union incur risk that would be reasonably likely to have a material or adverse effect on the Company.

Union utilizes data available from the FDIC, the Independent Community Bankers Association, the accounting firm of Berry Dunn McNeil & Parker, LLC and other vendors to assess and compare compensation practices. The Committee and Union'sUnion’s Board also considered salary surveys prepared by other companies that specialize in compiling data on compensation and benefit packages for banks. Based on prior practices and recommendations, the Company continues to offer a plan which will allow for the granting of incentive stock options to executive officers and to certain senior officers of Union.

In November 2010,June 2013, the Committee and Union'sUnion’s Board engaged Pearl Meyer and Partners (“Pearl”) to review officer compensation at Union and director compensation for the Company and Union. This analysis, completed in 2011, resulted in the Company's Board approving adjustmentsOctober 2013, was designed to annual salaries forassess Union’s compensation of senior officers and other selected officers of Union, as well as adjustments to the director fee compensation structure for the Company and Union. One half of the adjustments were implemented in 2011 and the second half as of the beginning of 2012. In advising the Committee and Board, Pearl developedofficer positions utilizing data from a peer group consisting of 1720 similar community banks in the

New England areaand upstate New York ranging in size from approximately $250$375 million to $1 billion$953 million in assets. Pearl used compensation data from thesethe peer banks, along withgroup as well as other public and proprietary data available to them to benchmark Union'sUnion’s existing compensation and benefit levels. Pearl then provided the Committee and the Boards of the Company and Union with recommendations for more closely aligning Union'sUnion’s compensation package to its financial performance in relationship to the peer group. These recommendations were implemented with salary adjustments made at the end of 2013.

In additionBased on prior practices and recommendations, the Company has offered a plan which allows for the granting of incentive stock options to salary adjustments,executive officers and to certain senior officers of Union. Based on the compensation analysis by Pearl, the Company has voted to recommend to shareholders the adoption of the Union Bankshares, Inc. 2014 Equity Incentive Plan (“Incentive Plan”). The Incentive Plan will continue to provide the opportunity for granting incentive stock options, and will additionally allow for the granting of restricted stock awards and restricted stock unit awards to eligible officers and nonemployee directors of the Company and of Union. More information regarding the Incentive Plan can be found under the caption "Proposal 2 - Approval of the Union Bankshares, Inc. 2014 Equity Incentive Plan" and in Appendix A of this proxy statement. The Incentive Plan would replace the 2008 Incentive Stock Option Plan of Union Bankshares, Inc. It is intended that upon approval by shareholders, no further awards shall be made under the Company’s 2008 Incentive Stock Option Plan. Any awards of incentive stock options made on or after such date of approval shall be deemed to be made under the 2014 Incentive Plan, and any outstanding awards of incentive stock options granted under the 2008 Incentive Stock Option Plan shall continue to be governed by the terms of such plan.

The Compensation Committee in consultation with Pearl, developedcontinues to offer a Short Term Incentive Performance Plan (“STIPP”). On February 3, 2012,6, 2013, the Company'sCompany’s Board, acting through its Compensation Committee, gave final approval to the terms of the STIPP and adopted annual performance and award targets under the Plan for 2012.2013. The performance measures are calculated utilizing Union financial information only. The STIPP has been designed to attract, motivate, retain and reward key employees of Union, while at the same time ensuring that incentives do not encourage inappropriate risk taking. Payouts from the STIPP were calculated based on the actual performance of Union, reviewed and approved by the Union Board, and awarded in March 2013February 2014 to eligible plan participants, including $36,118 to Mr. Silverman, ($34,415) and$15,572 to Ms. Mongeon ($16,573).and $10,742 to Mr. Gibbons was not eligible for an award underCoslett. STIPP payouts from the STIPP due2012 plan were paid out in March 2013, including $34,415 to his retirement. In February 2013, theMr. Silverman and $16,573 to Ms. Mongeon. The Boards of the Company and Union approved 20132014 performance goals underfor the STIPP program which are substantially similar to those under the 20122013 plan.

Final guidance governing incentive compensation for financial institutions was issued in 2010 by the Federal Reserve Board, joined by the Federal Deposit Insurance Corporation and other federal banking regulatory agencies. The guidance is designed to promote safety and soundness of the institution by appropriately balancing the risk and reward of an incentive compensation arrangement, by implementing effective controls and risk-management, and by having strong corporate governance through active and effective oversight by the Company'sCompany’s Board. An important component of the compensation consulting services rendered by Pearl in 20112013 was to ensure that Union'sUnion’s compensation practices, including the STIPP, do not promote excessive risk taking that would have a material or adverse effect on the Company. These pay practices were not changed in 2012,2013, and are believed to remain in conformity with the inter-agency guidance of incentive compensation.

 

In January 2012,2013, CEO GibbonsSilverman met with the Board of Directors of Union for his annual review and the Compensation Committee presented its compensation recommendation to the full Union Board. At that time Mr. Gibbons'Silverman’s salary was increased from an annual rate of $266,400$231,750 to $283,250,$260,000, representing an increase of 6.33%12.19%. In determining Mr. Gibbons' 2012Silverman’s 2013 salary level, the Board of Directors of Union and the Committee considered the Company'sCompany’s and Union'sUnion’s financial performance for 2011,2012, including return on average equity of 12.47%16.35%, return on average assets of 1.04%1.22% and an efficiency ratio of 72.61%71.51% for the Company. The ratios were considered favorable within the context of the state of the economy and peer bank performance. In setting Mr. Gibbons'Silverman’s overall compensation, the Committee and Union'sUnion’s Board also considered the fees he received for serving as Director of the Company ($8,9668,462 in 2011)2012) as well as his use of a bank owned vehicle.

Consistent with the approach taken in compensating Mr. Gibbons,Silverman, it has been the policy of the Compensation Committee to establish salary and benefit levels for other executive officers of the Company, in a manner designed to reflect the individual'sindividual’s performance and contributions to the overall profitability of the Company. In January 2012, Mr. Silverman received an annualized salary increase from $200,000 to $231,750, a 15.88% increase in recognition of his responsibilities as President throughout all of 2012 and his added responsibilities as CEO effective May 16, 2012. In setting Mr. Silverman's overall compensation, the Committee and Union's Board considered the same measures of Company financial performance as for Mr. Gibbons, and also the fees Mr. Silverman received for serving as Director of the Company ($4,793 in 2011) as well as his use of a bank owned vehicle.

The Committee believes that stock-based compensation is an appropriate element of the overall compensation package of its executive officers in that it helps to further align their long-term financial interests with those of the stockholders. During 2012,2013, the Committee awarded incentive stock options under the Company'sCompany’s 2008 Incentive Stock Option Plan to three senior officers, including an award to Mr. Silverman of an option to purchase 3,000 shares, and an award to Ms. Mongeon of an option to purchase 1,500 shares and an award to Mr. Coslett of an option to purchase 1,500 shares. The per share exercise price of these options was $19.60,$22.00, which was the per share fair market value of the Company'sCompany’s common stock on the date of the award, November 7, 2012.December 18, 2013. Under the Plan, eligible employees are selected by the Committee from time to time to receive stock options, as provided in the Plan. During 2011, no2012, awards were made under the Plan other than to Mr. Silverman (3,000 shares) and Ms. Mongeon. All options previously awarded under the predecessor 1998 Incentive Stock Option Plan have either been exercised or have expired.Mongeon (1,500 shares).

The Company maintains two nonqualified deferred compensation plans, one of which is closed to new participants and the other (the 2006 “Excess Plan”) is open to participation by certain key employees, including the three individualsboth Mr. Silverman and Ms. Mongeon who served as executive officers of the Company during 2012.for all of 2013. These plans were adopted because of regulatory limitations relating to both the Company'sCompany’s tax qualified Defined Benefit Pension and Employee Savings [“(“401(k)”]) Plans on the amount of deferrals or benefits our executives can make to or receive from those broad-based, tax-qualified plans. The two nonqualified deferred compensation plans were designed to permit our executives to supplement their retirement savings in order to help them maintain the standard of living in retirement that they have built up throughout their working career.

After extensive deliberations and discussion, onOn October 5, 2012, Union'sUnion’s Board approved action to freeze benefit accruals under the Union Bank Pension Plan and to close the plan to new participants. This decision was driven by continued escalating costs for maintaining an adequate funding status for the pension plan caused by historically low interest rates, lengthening life expectancies for pension beneficiaries, and other actuarial factors. The earnings volatility and impact on the Bank's capital position regarding the plan's funding status were also factors taken into consideration by the Union Board. In addition to closing the pension plan to new participants, the effect of the freeze has been to exclude any further increase in future pension benefit accruals for existing participants after the freeze date due to additional years of service, increases in pension plan eligible earnings and any other factors affecting pension benefit calculations. Therefore, the future pension benefit to be received by Mr. Silverman, and Ms. Mongeon and Mr. Coslett at their retirement (recognizing a reduction of monthly pension benefit if elected prior to normal retirement age of 65) will remain at the level determined as of October 5, 2012, unless

the pension plan is later unfrozen. Also in late 2012, Union’s Board amended the Union Bank 401(k) Plan (“401(k) Plan”) to include a Safe Harbor provision, which is applicable to substantially all full time and part time employees of Union who meet eligibility requirements. As a result, the 401(k) Plan in 2013 provided a 3.0% nondiscretionary employer contribution to each eligible participant based on eligible compensation. Mr. Silverman, Ms. Mongeon and Mr. Coslett each received this 3.0% Safe Harbor contribution, subject to Internal Revenue Code income limitations.

The following table sets forth certain information regarding the Company's current executive officers and all individuals who served as executive officers of the Company during 2012:2013:

Additional information about the background, experience and qualifications of Ms. Mongeon, Mr. Coslett and Ms. Hale is set forth below, and information pertaining to Mr. Gibbons and Mr. Silverman is contained elsewhere in this proxy statement under the caption “PROPOSAL 1: TO ELECT DIRECTORS - Director Qualifications.”

Marsha Mongeon has served since 1989 as the Chief Financial Officer and Treasurer of the Company and Union Bank.Bank from 1989 until her retirement on March 31, 2014. While serving in such capacities, Ms. Mongeon's current responsibilities includeincluded oversight of accounting, internal controls, treasury, taxation, shareholder relations, regulatory reporting, asset/liability management, profitability, retirement programs and serving on the senior management team. Other responsibilities over her career with Union have included managing operations, information systems, security, human resources, loan servicing, audit/exam processes, facilities and purchasing. Ms. Mongeon haswas also been a key participant in merger/acquisition activities, system conversions and strategic planning. Prior to joining the Company and Union, Ms. Mongeon worked in public accounting with Arthur Andersen & Company, State Street Bank and Trust Company, and Arlington Trust Company. She graduated from Bentley College with a Bachelor's of Science degree in Accounting, and is a Certified Public Accountant. Her membership affiliations include the American Institute of Certified Public Accountants, the Financial Managers Society and the Vermont Bankers Association.

The Company's onlycurrent stock-based compensation plan is the 2008 Incentive Stock Option Plan (the “Plan”), which was adopted following expiration of an earlier incentive stock option plan containing similar terms. The purpose of the Plan is to link senior management compensation more closely to corporate performance and increases in shareholder value, and to assist the Company in attracting, retaining and motivating executive management. Eligible employees consist of only those senior officers and other key employees of the Company or the Bank who are in a position to contribute significantly to profitability and who are recommended by the Compensation Committee, which administers the Plan.

Awards under the Plan consist of options to purchase shares of the Company's common stock at a fixed price, at least equal to 100% of the fair market value of the shares on the day the option is granted. The options may be exercised for a period of time established by the Board at the time of the grant, but no longer than ten years from the date of option grant. The optionee may pay for the option shares with either cash or other shares of the Company's common stock (valued at their fair market value), including shares withheld upon exercise of the option.

The options granted are subject to a one year vesting period before they become exercisable. All outstanding grants under the PlanAs of December 31, 2013, exercisable options with respect to 2,500 shares expire five years after the grant date, of grant or fourand exercisable options with respect to 6,000 shares expire seven years after they became exercisable.the grant date. The nonexercisable grantsoptions awarded in November 2012December 2013 that are not yet exercisable expire seven years after the date of grant or six years after they become exercisable. All outstanding grants are subject to early termination following the optionee's termination of employment during the option period, and to early vesting if the individual retires, dies or is disabled.

Options granted under the Plan must contain various provisions and limitations intended to qualify them as incentive stock options under federal income tax laws. Generally, the optionee will not recognize gain at the time the option is granted or exercised, but only upon later sale of the shares received upon exercise. The total number of shares of the Company's common stock that could be awarded under the plan was 50,000, subject to standard antidilution adjustments in the case of stock dividends, stock splits, recapitalization and similar changes in the Company's capitalization. As of December 31, 2012, 31,0002013, 25,000 shares remain available for future option grants.

There were 6,000 incentive stock options granted in 2012:2013: 3,000 options to Mr. Silverman, 1,500 options to Ms. Mongeon, and 1,500 options to a Senior Vice President of Union.Mr. Coslett. There were 3,0006,000 incentive stock options granted in 2011,2012, including 3,000 options to Mr. Silverman,1,500 options to Ms. Mongeon, and 1,500 options to Mr. Silverman and 1,500 shares to Ms. Mongeon.Coslett.

In assessing the grant date values for option grants in 20122013 and 2011,2012, as shown in the 20122013 Summary Compensation Table above, readers should keep in mind that no matter what theoretical value is placed on a stock option on the date of grant, its ultimate value will be dependent on the market value of the Company's stock at a future date and that value will in large part depend, in turn, on the efforts of the Company's management team.

During 2013, options were exercised for the purchase of 3,300 shares, 1,500 shares at an exercise price per share of $19.60, 1,000 shares at an exercise price of $19.19, and 800 shares at an exercise price of $17.15. During 2012, options were exercised for the purchase of 700 shares, at an exercise price per share of $17.15 for each such option. During 2011, options were exercised for the purchase of 1,500 shares, at an exercise price per share of $17.15 for each such option. OptionNo option awards were forfeited or expired during 2013. Option awards with respect to 7,500 and 2,500 shares expired or were forfeited in 2012 and 2011, respectively.2012.

The following table sets forth certain information regarding outstanding incentive stock options held at December 31, 20122013 by the executive officers named in the 20122013 Summary Compensation Table:

Union Bankshares, Inc. and Union Bank sponsor two nonqualified deferred compensation plans for Directors and certain key officers. Promised benefits under the plans are general unsecured obligations of the Company and/or the Bank. No assets of the Company or the Bank have been segregated to meet the payment obligations under the plans. However, the

Company and the Bank have jointly purchased life insurance and mutual funds to fund substantially all of the benefit payments under the plans. As of December 31, 2012, all executive officers named in the 2012 Summary Compensation Table2013, Mr. Silverman and Ms. Mongeon were participants in at least one of the plans.

The Company's Executive Nonqualified Excess Plan is a defined contribution plan, which provides a means for participants to elect to defer receipt of current compensation from the Company or the Bank in order to provide retirement or other benefits as selected in the individual adoption agreements. Participants may select among designated reference investments consisting of investment funds, with the performance of the participant's account mirroring the selected reference investment. Distributions are made only upon a qualifying distribution event, which may include a separation from service, death, disability or unforeseeable emergency or (in the case of distributions from an in-service withdrawal account or education funding account) upon a date specified in the participant's deferral election form.

The Company also maintains the 2008 Amended and Restated Nonqualified Deferred Compensation Plan, a defined benefit plan, which was frozen in 1998 to new participants and in 2004 to additional deferrals. The plan was amended and restated in 2008 in order to comply with the provisions of Section 409A of the Internal Revenue Code, added by the American Jobs Creation Act of 2004. OneTwo nonemployee director, Mr. Gibbonsdirectors and Ms. Mongeon are participants in the plan and are entitled to future annual payments with respect to compensation deferred by them in prior years.

The Union Bank Defined Benefit Pension Plan ("Plan") covers all eligible employees of the Bank employed prior to October 5, 2012. On October 5, 2012, the Company closed the Plan to new participants and froze the accrual of retirement benefits for current participants. It is Union's current intentUnion continues to maintain the frozen Plan and related Trust and to distribute benefits to participants at such time and in such manner as provided under the terms of the Plan. Employees were eligible who were not classified as “summer” or “temporary” and who had completed more than 1,000 hours of service in a calendar twelve month period. The plan is noncontributory, nondiscriminatory and nonconvertible. An employee generally becomesbecame 100% vested in the plan after 7 years. The plan was designed to provide retirement benefits to all eligible employees. Benefits begin on retirement after age 65, although early retirement may be taken after age 55, with an actuarially reduced benefit. Mr. Gibbons started drawing his pension subsequent to his retirement. Ms. Mongeon isand Mr. Coslett are eligible for early retirementretirement. Ms. Mongeon’s and herMr. Coslett’s monthly life annuity payments if shethey had retired on December 31, 20122013 would have been $2,964.$3,135 and $771, respectively. Benefit calculations disregarded any years of service over 20 (which Mr. Silverman and Ms. Mongeon had exceeded as of the date of the freeze)freeze but Mr. Coslett had not) and are subject to the limitations under the Internal Revenue Code on the amount of compensation that may be considered in such calculations ($250,000 for 2012) and on the amount of the annual benefit payable under the plan ($200,000205,000 for 2012)2013). Covered compensation for purposes of the benefit calculations includesincluded salary and cash bonuses, but not other forms of compensation. Employees choose the form of annuity payout at the point of retirement and do not have the option of a lump sum payout unless the present value of the payout is minimal.

Union Bank maintains a contributory, tax qualified Employee Savings [401(k)]401(k) and Profit Sharing Plan covering all employees who meet certain eligibility requirements. Participants may elect to contribute up to the IRS maximum dollar amount limitations of their eligible compensation to their 401(k) plan account on a tax deferred basis. Effective January 1, 2013, the plan provides for a nondiscretionary 3% Safe Harbor contribution. The plan also provides for matching contributions by Union Bank, in the sole discretion of the Bank's Board of Directors. During 2013 and 2012, Union Bank made a discretionary 401(k) matching contribution of fifty cents for every dollar of compensation deferred by the participant, up to 6% of each participant's eligible compensation. In February 2014, a 3% discretionary profit sharing contribution, declared in December 2013, was made to each eligible employee's 401(k) account. In February 2013, a 3% discretionary profit sharing contribution, declared in December 2012, was made to each eligible employee's 401(k) account. DiscretionaryNondiscretionary Safe Harbor contributions, discretionary matching contributions and the profit sharing contribution made for the accounts of the three executive officers named in the 20122013 Summary Compensation Table are included in the table under “All Other Compensation.”

On February 3, 2012,Annually, the Company adoptedon a discretionary basis may choose to offer incentive compensation under the Union Bank Short Term Incentive Performance Plan and adopted("STIPP") by establishing annual performance and award targets under the Plan for 2012.the effective plan (calendar) year. On February 4, 2013, the Company adopted the 2013 STIPP, and on February 3, 2012 adopted the 2012 STIPP. Participants will beare designated each year by the Union Board, upon recommendation of the Compensation Committee. Mr. Silverman and Ms. MongeonAll of the named executive officers were designated as participants for 2013 and 2012, and have been so designated for 2013.2014. The Union Board hason February 5, 2014 adopted annual performance and award targets under the Plan for 2013. The performance period is a calendar year, and financial2014. Financial results utilized in establishing performance targets and calculating awards are on a Bank-only basis. Awards (if any) are paid in cash within two and one-half months after the end of the calendar year. The 2013 awards paid out in February 2014 for the account of Mr. Silverman, Ms. Mongeon and Mr. Coslett, and the 2012 awards paid out in March 2013 for the account of Mr. Silverman and Ms. Mongeon are included in the 20122013 Summary Compensation Table under "Nonequity Incentive Plan Compensation." Participants do not have a vested right in any award prior to payout.

On March 19, 2014, upon recommendation of the Securities and Exchange Act of 1934, as amended in 2010 by the Dodd-Frank Act,Compensation Committee, our Board of Directors is submitting fordirectors adopted the Union Bankshares, Inc. 2014 Equity Incentive Plan (the “Equity Plan” or the “Plan”), subject to shareholder approval at the annual meeting. If approved, the Equity Plan will replace the 2008 Incentive Stock Option Plan (the “2008 ISO Plan”) and would apply to awards granted on an advisory basis,or after the compensation paid to the three executive officers named in the 2012 Summary Compensation Table (“Named Executive Officers” or “NEOs”), as described in this proxy statement.

Among the case of stock options, awarded, there is generally no opportunity for us to revisit those decisions. However,factors the Compensation Committee and Board considered in assessing the Board intend to takeadvisability of adopting the resultsPlan were the importance of equity as a component of our overall compensation program and the appropriateness of equity compensation within the context of our overall compensation philosophy, as well as the advice of our independent compensation consultants, Pearl Meyer & Partners, LLC, on matters of compensation practices and plan design.

A summary of the vote on this proposal into accountmaterial features of the Equity Plan is set forth below. The summary is qualified in its future recommendations and decisions regardingentirety by reference to the compensationfull text of the Equity Plan, which is attached to this proxy statement as Appendix A.