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 27, 2019 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.



Shares Available for Grant at Period-End				225,485

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 summarizes information about stock option activity for the year ended December 31, 2019.



	Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (in years)	Aggregate Intrinsic Value
Outstanding at January 1, 2019	293,058		$	24.92
Granted	53,560		$	30.79
Exercised	(86,508	)	$	20.69
Forfeited	(18,868	)	$	25.83
Outstanding at December 31, 2019	241,242		$	27.58	6.50	$	2,465
Vested at Period-End	126,081		$	24.71	4.96	$	1,649
Expected to Vest	115,161		$	30.72	8.19	$	816

The following is the Schedule of Stock Options Granted Under the Long Term Incentive Plan by Exercise Price Range.



	Exercise Price Ranges
	$19.01		$20.29 to $20.87		$21.35		$22.51 to $22.97		$30.79 to $30.91		$34.05		Total
Outstanding at December 31, 2019
Number of Stock Options Outstanding	1,872		27,325		20,338		52,385		98,614		40,708		241,242
Weighted-Average Remaining Contractual Life (in years)	0.08		1.92		4.08		5.66		8.61		7.07		6.50
Weighted-Average Exercise Price	$	19.01	$	20.57	$	21.35	$	22.78	$	30.85	$	34.05	$	27.58

Vested at December 31, 2019
Number of Stock Options Outstanding	1,872		27,325		20,338		42,672		12,570		21,304		126,081
Weighted-Average Remaining Contractual Life (in years)	0.08		1.92		4.08		5.56		8.09		7.07		4.96
Weighted-Average Exercise Price	$	19.01	$	20.57	$	21.35	$	22.73	$	30.91	$	34.05	$	24.71

The following is the Schedule of Other Information on Stock Options Granted.



	2019			2018			2017
Stock Options Granted	53,560			55,070			59,009
Weighted Average Grant Date Information:
Fair Value of Options Granted	$	5.58		$	5.43		$	5.89
Fair Value Assumptions:
Dividend Yield	3.26		%	2.98		%	2.72		%
Expected Volatility	22.58		%	21.55		%	21.40		%
Risk Free Interest Rate	2.63		%	2.68		%	2.25		%
Expected Lives (in years)	8.68			6.98			6.88

Amount Expensed During the Year	$	316		$	322		$	351
Compensation Costs for Non-vested Awards Not Yet Recognized	487			504			528
Weighted Average Expected Vesting Period, In Years	2.07			2.74			2.59
Proceeds From Stock Options Exercised	$	1,792		$	2,255		$	1,190
Tax Benefits Related to Stock Options Exercised	227			240			168
Intrinsic Value of Stock Options Exercised	1,073			1,552			825

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 and are no longer forfeitable. Vested units settle upon retirement of the recipient. 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 summarizes information about restricted stock unit activity for the year ended December 31, 2019. The Company started granting restricted stock units in 2018.



	Restricted Stock Units	Weighted Average Grant Date Fair Value
Non-vested at January 1, 2019	3,478	$	31.62
Granted	4,018	$	30.79
Vested	—	$	—
Canceled	—	$	—
Non-vested at December 31, 2019	7,496	$	31.18

Non-vested at January 1, 2018	—	$	—
Granted	3,478	$	31.62
Vested	—	$	—
Canceled	—	$	—
Non-vested at December 31, 2018	3,478	$	31.62

The following table presents information on the amounts expensed related to Restricted Stock Units awarded pursuant to the Long Term Incentive Plan for the year ended December 31, 2019.



	2019		2018
Amount Expensed During the Year	$	75	$	34
Compensation Costs for Non-vested Awards Not Yet Recognized	126		76

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 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 2019. As the debt was repaid, shares were released from collateral based on the proportion of debt paid to total debt outstanding for the year and allocated to active employees. At December 31, 2019, there was no outstanding balance remaining on the loans and therefore no remaining unallocated shares. In addition, the Company makes additional cash contributions to the Plan each year.

Schedule of ESOP Compensation Expense



	2019		2018		2017
ESOP Compensation Expense	$	1,368	$	1,400	$	1,400

Prior to December 31, 2019, shares pledged as collateral were reported as unallocated ESOP shares in stockholders’ equity. As shares were released from collateral, Arrow reported compensation expense equal to the current average market price of the shares, and the shares become outstanding for earnings per share computations. During the year ended December 31, 2019, all remaining unallocated shares were released. The ESOP shares as of December 31, 2019 were as follows:

Schedule of Shares in ESOP Plan



ESOP Plan Shares:	2019
Allocated Shares	759,321
Shares Released for Allocation During 2019	5,151
Unallocated Shares	—
Total ESOP Shares	764,472