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

Arrow has established three stock-based compensation plans: an Incentive and Non-qualified Stock Option Plan (Long Term Incentive Plan), an Employee Stock Purchase Plan (ESPP) and an Employee Stock Ownership Plan (ESOP). All share and per share data have been adjusted for the September 28, 2017 3% stock dividend.

Long Term Incentive Plan

The Long Term Incentive Plan provides for the grant of incentive stock options, non-qualified stock options, restricted stock, restricted stock units, performance units and performance shares. The Compensation Committee of the Board of Directors administers the Long Term Incentive Plan.

Stock Options - 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.

The following table presents the roll forward of stock options issued pursuant to the Long Term Incentive Plan by Shares and Weighted Average Exercise Prices.




Roll-Forward of Shares Outstanding:
Outstanding at January 1, 2018	346,155
Granted	55,188
Exercised	(79,001		)
Forfeited	(6,321		)
Outstanding at June 30, 2018	316,021
Exercisable at Period-End	198,544
Vested and Expected to Vest	117,477

Roll-Forward of Shares Outstanding - Weighted Average Exercise Price:
Outstanding at January 1, 2018	$	24.12
Granted	30.85
Exercised	21.41
Forfeited	29.94
Outstanding at June 30, 2018	25.85
Exercisable at Period-End	23.06
Vested and Expected to Vest	30.55

Schedule of Other Long Term Incentive Plan Information
Grants Issued During 2018 - Weighted Average Information:
Fair Value	$	5.76
Fair Value Assumptions:
Dividend Yield	2.98		%
Expected Volatility	21.55		%
Risk Free Interest Rate	2.68		%
Expected Lives (in years)	6.98

Restricted Stock Units - The Company grants restricted stock units which gives the recipient the right to receive shares of Company stock upon vesting. The fair value of each restricted stock unit is the market value of Company stock on the date of grant. 100% of the restricted stock unit awards vest three years from the grant date. Once vested, the restricted stock units become vested units. Unvested restricted stock unit awards will generally be forfeited if the recipient ceases to be employed by the Company, with limited exceptions.

The following table presents the roll forward of restricted stock units by units and weighted average grant-date fair value.




Roll-Forward of Restricted Stock Units
Non-vested at January 1, 2018	—
Granted	3,279
Vested	—
Canceled	—
Non-vested at June 30, 2018	3,279

Roll-Forward of Non-vested Restricted Stock Units - Weighted Average Fair Value:
Non-vested at January 1, 2018	$	—
Granted	33.55
Vested	—
Canceled	—
Non-vested at June 30, 2018	33.55

The following table presents information on the amounts expensed for the periods ended June 30, 2018 and 2017:



Share-Based Compensation Expense
	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2018		2017		2018		2017
Share-Based Compensation Expense	$	89	$	89	$	178	$	172

Employee Stock Purchase Plan

Arrow sponsors an ESPP under which employees purchase Arrow's common stock at a 5% discount below market price. Under current accounting guidance, a stock purchase plan with a discount of 5% or less is not considered a compensatory plan.

Employee Stock Ownership Plan

Arrow maintains an 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.

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.