STOCK BASED COMPENSATION (Dollars In Thousands, Except Share and Per Share Amounts)

Arrow has established two stock based compensation plans: an Incentive and Non-qualified Stock Option Plan (Stock Option Plan) and an Employee Stock Ownership Plan (ESOP). All share and per share data have been adjusted for the September 2013 2% stock dividend.

Stock Option Plan

Options may be granted at a price no less than the greater of the par value or fair market value of such shares on the date on which such option is granted, and generally expire ten years from the date of grant. The options usually vest over a four-year period.

Roll Forward Schedule of Stock Option Plan by Shares and Weighted Average Exercise Prices



	Stock Option Plans
Roll Forward of Shares Outstanding:
Outstanding at January 1, 2013	451,210
Granted	10,200
Exercised	(59,612		)
Forfeited	(12,406		)
Outstanding at December 31, 2013	389,392
Exercisable at December 31, 2013	269,758
Vested and Expected to Vest	119,634

Roll Forward of Shares Outstanding - Weighted Average Exercise Price:
Outstanding at January 1, 2013	$	22.67
Granted	23.80
Exercised	21.02
Forfeited	24.71
Outstanding at December 31, 2013	22.89
Exercisable at December 31, 2013	22.29
Vested and Expected to Vest	24.25

Weighted Average Remaining Contractual Life (in years):
Outstanding at December 31, 2013	5.57
Exercisable at December 31, 2013	4.68
Vested and Expected to Vest	7.58

Aggregate Intrinsic Value:
Outstanding at December 31, 2013	$	1,429
Exercisable at December 31, 2013	1,152
Vested and Expected to Vest	277

Shares Available for Grant at Period-End	459,000

Schedule of Shares Authorized Under the Stock Option Plan by Exercise Price Range



	Exercise Price Ranges
	$19.08 to $19.87		$21.24 to $22.27		$23.76 to $23.80		$24.43		$25.77		Total
Outstanding Options at December 31, 2013
Number of Shares Outstanding	85,278		98,376		83,015		75,512		47,211		389,392
Weighted-Average Remaining Contractual Life (in years)	4.73		5.11		7.34		8.05		0.97		5.57
Weighted-Average Exercise Price	$	19.64	$	21.95	$	23.77	$	24.43	$	25.77	$	22.89

Exercisable Options at December 31, 2013
Number of Shares Outstanding	85,278		81,150		36,391		19,728		47,211		269,758
Weighted-Average Remaining Contractual Life (in years)	4.73		4.90		7.09		7.94		0.97		4.68
Weighted-Average Exercise Price	$	19.64	$	21.88	$	23.77	$	24.42	$	25.77	$	22.29

Schedule of Other Stock Option Plan Information



	2013			2012			2011
Shares Granted	10,200			77,302			79,994
Weighted Average Grant Date Information:
Fair Value of Options Granted	$	5.46		$	5.89		$	6.00
Fair Value Assumptions:
Dividend Yield	4.20		%	3.93		%	4.00		%
Expected Volatility	36.57		%	37.43		%	36.50		%
Risk Free Interest Rate	1.31		%	1.22		%	2.54		%
Expected Lives (in years)	6.71			6.46			6.40

Amount Expensed During the Year	$	372		$	424		$	354
Compensation Costs for Non-vested Awards Not Yet Recognized	420			737			705
Weighted Average Expected Vesting Period, In Years	1.45			1.71			1.80
Proceeds From Stock Options Exercised	$	1,254		$	2,105		$	1,413
Tax Benefits Related to Stock Options Exercised	23			68			51
Intrinsic Value of Stock Options Exercised	267			2,434			1,740

Employee Stock Ownership Plan

Arrow maintains an employee stock ownership plan (“ESOP”). Substantially all employees of Arrow and its subsidiaries are eligible to participate upon satisfaction of applicable service requirements. The ESOP borrowed funds from one of Arrow’s subsidiary banks to purchase outstanding shares of Arrow’s common stock. The notes require annual payments of principal and interest through 2018. As the debt is repaid, shares are released from collateral based on the proportion of debt paid to total debt outstanding for the year and allocated to active employees. In addition, the Company makes additional cash contributions to the Plan each year.

Schedule of ESOP Compensation Expense



	2013		2012		2011
ESOP Compensation Expense	$	600	$	550	$	550

As the debt is repaid, shares are released from collateral based on the proportion of debt paid to total debt outstanding for the year and allocated to active employees.

Shares pledged as collateral are reported as unallocated ESOP shares in stockholders’ equity. As shares are released from collateral, Arrow reports compensation expense equal to the current average market price of the shares, and the shares become outstanding for earnings per share computations. The ESOP shares as of December 31, 2013 were as follows:

Schedule of Shares in ESOP Plan



ESOP Plan Shares:	2013
Allocated Shares	644,248
Shares Released for Allocation During 2013	16,969
Unallocated Shares	87,641
Total ESOP Shares	748,858

Market Value of Unallocated Shares	$	2,328