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 2014 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, 2014	397,177
Granted	75,518
Exercised	(62,269		)
Forfeited	(8,984		)
Outstanding at December 31, 2014	401,442
Exercisable at December 31, 2014	266,654
Vested and Expected to Vest	134,788

Roll Forward of Shares Outstanding - Weighted Average Exercise Price:
Outstanding at January 1, 2014	$	22.44
Granted	24.51
Exercised	23.35
Forfeited	23.89
Outstanding at December 31, 2014	22.66
Exercisable at December 31, 2014	21.74
Vested and Expected to Vest	24.47

Weighted Average Remaining Contractual Life (in years):
Outstanding at December 31, 2014	5.83
Exercisable at December 31, 2014	4.67
Vested and Expected to Vest	8.13

Aggregate Intrinsic Value:
Outstanding at December 31, 2014	$	1,939
Exercisable at December 31, 2014	1,533
Vested and Expected to Vest	406

Shares Available for Grant at Period-End	445,000

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



	Exercise Price Ranges
	$18.71 to $19.48		$20.82		$21.83		$23.30 to $23.95		$24.51 to $25.27		Total
Outstanding Options at December 31, 2014
Number of Shares Outstanding	72,516		27,470		64,829		153,236		83,391		401,442
Weighted-Average Remaining Contractual Life (in years)	3.69		1.92		5.08		6.66		8.05		5.83
Weighted-Average Exercise Price	$	19.24	$	20.82	$	21.83	$	23.61	$	24.60	$	22.55

Exercisable Options at December 31, 2014
Number of Shares Outstanding	72,516		27,470		64,829		92,333		9,506		266,654
Weighted-Average Remaining Contractual Life (in years)	3.69		1.92		5.08		6.44		8.05		4.67
Weighted-Average Exercise Price	$	19.24	$	20.82	$	21.83	$	23.56	$	25.27	$	21.74

Schedule of Other Stock Option Plan Information



	2014			2013			2012
Shares Granted	75,518			10,404			78,848
Weighted Average Grant Date Information:
Fair Value of Options Granted	$	5.92		$	5.35		$	5.77
Fair Value Assumptions:
Dividend Yield	3.97		%	4.20		%	3.93		%
Expected Volatility	35.30		%	36.57		%	37.43		%
Risk Free Interest Rate	2.19		%	1.31		%	1.22		%
Expected Lives (in years)	6.85			6.71			6.46

Amount Expensed During the Year	$	360		$	372		$	424
Compensation Costs for Non-vested Awards Not Yet Recognized	478			420			737
Weighted Average Expected Vesting Period, In Years	1.68			1.45			1.71
Proceeds From Stock Options Exercised	$	1,454		$	1,254		$	2,105
Tax Benefits Related to Stock Options Exercised	25			23			68
Intrinsic Value of Stock Options Exercised	170			267			2,434

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



	2014		2013		2012
ESOP Compensation Expense	$	800	$	600	$	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, 2014 were as follows:

Schedule of Shares in ESOP Plan



ESOP Plan Shares:	2014
Allocated Shares	690,853
Shares Released for Allocation During 2013	17,300
Unallocated Shares	71,748
Total ESOP Shares	779,901

Market Value of Unallocated Shares	$	1,972