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 2015 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, 2015	409,471
Granted	55,590
Exercised	(43,589		)
Forfeited	(11,990		)
Outstanding at December 31, 2015	409,482
Exercisable at December 31, 2015	275,401
Vested and Expected to Vest	134,081

Roll Forward of Shares Outstanding - Weighted Average Exercise Price:
Outstanding at January 1, 2015	$	22.04
Granted	25.35
Exercised	21.04
Forfeited	23.23
Outstanding at December 31, 2015	22.59
Exercisable at December 31, 2015	21.68
Vested and Expected to Vest	24.47

Weighted Average Remaining Contractual Life (in years):
Outstanding at December 31, 2015	5.72
Exercisable at December 31, 2015	4.52
Vested and Expected to Vest	8.19

Aggregate Intrinsic Value:
Outstanding at December 31, 2015	$	1,875
Exercisable at December 31, 2015	1,512
Vested and Expected to Vest	363

Shares Available for Grant at Period-End	401,000

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, 2015
Number of Shares Outstanding	65,112		13,150		134,458		67,565		129,197		409,482
Weighted-Average Remaining Contractual Life (in years)	2.74		0.92		4.78		6.07		8.51		5.72
Weighted-Average Exercise Price	$	18.89	$	20.41	$	22.21	$	23.48	$	24.60	$	22.59

Exercisable Options at December 31, 2015
Number of Shares Outstanding	65,112		13,150		129,679		49,747		17,713		275,401
Weighted-Average Remaining Contractual Life (in years)	2.74		0.92		4.69		6.07		8.08		4.52
Weighted-Average Exercise Price	$	18.89	$	20.41	$	22.19	$	23.48	$	24.03	$	21.68

Schedule of Other Stock Option Plan Information



	2015			2014			2013
Shares Granted	55,590			75,518			10,404
Weighted Average Grant Date Information:
Fair Value of Options Granted	$	5.67		$	5.80		$	5.25
Fair Value Assumptions:
Dividend Yield	3.90		%	3.97		%	4.20		%
Expected Volatility	33.55		%	35.30		%	36.57		%
Risk Free Interest Rate	1.57		%	2.19		%	1.31		%
Expected Lives (in years)	7.66			6.85			6.71

Amount Expensed During the Year	$	308		$	360		$	372
Compensation Costs for Non-vested Awards Not Yet Recognized	500			478			420
Weighted Average Expected Vesting Period, In Years	2.12			1.68			1.45
Proceeds From Stock Options Exercised	$	917		$	1,454		$	1,254
Tax Benefits Related to Stock Options Exercised	59			25			23
Intrinsic Value of Stock Options Exercised	250			170			267

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



	2015		2014		2013
ESOP Compensation Expense	$	900	$	800	$	600

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, 2015 were as follows:

Schedule of Shares in ESOP Plan



ESOP Plan Shares:	2015
Allocated Shares	684,016
Shares Released for Allocation During 2015	17,645
Unallocated Shares	55,275
Total ESOP Shares	756,936

Market Value of Unallocated Shares	$	1,502