ARROW FINANCIAL CORPAROW
ARROW FINANCIAL CORP Stock Compensation Disclosure
STOCK-BASED COMPENSATION (Dollars In Thousands, Except Share and Per Share Amounts)
Arrow has established three stock-based compensation plans: a Long Term Incentive Plan, an Employee Stock Purchase Plan (ESPP) and an Employee Stock Ownership Plan (ESOP). When applicable, share and per share data have been adjusted for the September 26, 2023 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 December 31, 2024 | 392,331 | |||||||||||||
Restricted Stock Awards - In May 2024, the Company granted restricted stock awards which will generally vest over a four-year period. Unvested restricted stock will generally be forfeited if the recipient ceases to be employed by the Company, with limited exceptions. Grantees of restricted stock awards are entitled to receive all dividends and distributions declared and paid on restricted stock, or cash payments equivalent to such dividends or distributions, including those declared and paid during the vesting period.
The following table summarizes information about restricted stock awards for the year ended December 31, 2024:
| Restricted Stock Awards | Weighted Average Grant Date Fair Value | |||||||
Outstanding at January 1, 2024 | — | $ | — | |||||
| Granted | 22,230 | $ | 24.54 | |||||
| Vested | (412) | $ | 24.54 | |||||
| Forfeited | — | — | ||||||
Outstanding at December 31, 2024 | 21,818 | $ | 24.54 | |||||
The following table presents information on the amounts expensed related to restricted stock awards.
| For the Year Ended December 31, | ||||||||||||||
| 2024 | 2023 | |||||||||||||
| Amount expensed | $ | 90 | $ | — | ||||||||||
The following is the Schedule of Other Information on restricted stock awards.
| 2024 | ||||||||
| Restricted Stock Awards Granted | 22,230 | |||||||
| Weighted Average Grant Date Information: | ||||||||
Fair Value of Awards Granted | $ | 24.54 | ||||||
| Total Grant Date Fair Value of Awards Granted in Period | $ | 546 | ||||||
| Total Fair Value of Awards Vested in Period | $ | 10 | ||||||
| Amount Expensed During the Year | $ | 90 | ||||||
| Compensation Costs for Non-vested Awards Not Yet Recognized | $ | 456 | ||||||
| Weighted Average Expected Vesting Period, In Years | 3.41 | |||||||
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 Company did not grant stock options in 2024.
The following table summarizes information about stock option activity for the year ended December 31, 2024.
| Shares | Weighted Average Exercise Price | Weighted Average Remaining Contractual Life (in years) | Aggregate Intrinsic Value | ||||||||||||||||||||
| Outstanding at January 1, 2024 | 305,308 | $ | 28.96 | ||||||||||||||||||||
| Granted | — | $ | — | ||||||||||||||||||||
| Exercised | (18,792) | $ | 22.91 | ||||||||||||||||||||
| Forfeited | (40,063) | $ | 28.47 | ||||||||||||||||||||
| Outstanding at December 31, 2024 | 246,453 | $ | 29.50 | 5.10 | $ | 256 | |||||||||||||||||
| Vested at Period-End | 189,700 | $ | 28.89 | 4.39 | $ | 242 | |||||||||||||||||
| Expected to Vest | 56,753 | $ | 31.54 | 7.47 | $ | 14 | |||||||||||||||||
The following is the Schedule of Stock Options Granted Under the Long Term Incentive Plan by Exercise Price Range.
| Exercise Price Ranges | |||||||||||||||||
$19.99 to $20.41 | $27.04 to $27.47 | $30.26 | $31.34 to $33.78 | Total | |||||||||||||
| Outstanding at December 31, 2024 | |||||||||||||||||
| Number of Stock Options Outstanding | 15,336 | 86,728 | 27,687 | 116,702 | 246,453 | ||||||||||||
| Weighted-Average Remaining Contractual Life (in years) | 0.65 | 4.62 | 2.07 | 6.85 | 5.10 | ||||||||||||
| Weighted-Average Exercise Price | $ | 20.23 | $ | 27.26 | $ | 30.26 | $ | 32.20 | $ | 29.50 | |||||||
| Vested at December 31, 2024 | |||||||||||||||||
| Number of Stock Options Outstanding | 15,336 | 78,252 | 27,687 | 68,425 | 189,700 | ||||||||||||
| Weighted-Average Remaining Contractual Life (in years) | 0.65 | 4.46 | 2.07 | 6.23 | 4.39 | ||||||||||||
| Weighted-Average Exercise Price | $ | 20.23 | $ | 27.28 | $ | 30.26 | $ | 32.11 | $ | 28.89 | |||||||
The following is the Schedule of Other Information on Stock Options Granted.
| 2024 | 2023 | 2022 | ||||||||||||||||||
| Stock Options Granted | — | 57,680 | 60,471 | |||||||||||||||||
| Weighted Average Grant Date Information: | ||||||||||||||||||||
| Fair Value of Options Granted | $ | — | $ | 7.78 | $ | 7.21 | ||||||||||||||
| Fair Value Assumptions: | ||||||||||||||||||||
| Dividend Yield | — | % | 3.30 | % | 2.90 | % | ||||||||||||||
| Expected Volatility | — | % | 28.38 | % | 27.15 | % | ||||||||||||||
| Risk Free Interest Rate | — | % | 3.57 | % | 1.69 | % | ||||||||||||||
| Expected Lives (in years) | 0 | 8.34 | 8.56 | |||||||||||||||||
| Amount Expensed During the Year | $ | 197 | $ | 284 | $ | 312 | ||||||||||||||
| Compensation Costs for Non-vested Awards Not Yet Recognized | 201 | 536 | 542 | |||||||||||||||||
| Weighted Average Expected Vesting Period, In Years | 1.77 | 2.29 | 2.22 | |||||||||||||||||
| Proceeds From Stock Options Exercised | $ | 433 | $ | 96 | $ | 631 | ||||||||||||||
| Tax Benefits Related to Stock Options Exercised | 34 | 11 | 34 | |||||||||||||||||
| Intrinsic Value of Stock Options Exercised | 115 | 34 | 338 | |||||||||||||||||
Restricted Stock Units - Historically, the Company has granted 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. Restricted stock units vested over three years from the grant date. Once vested, the restricted stock units are no longer forfeitable. Vested units settle upon retirement of the recipient. Unvested restricted stock units generally forfeit if the recipient ceases to be employed by the Company, with limited exceptions. The Company did not grant restricted stock units in 2024.
The following table summarizes information about restricted stock unit activity for the years ended December 31, 2024, 2023 and 2022.
| Restricted Stock Units | Weighted Average Grant Date Fair Value | ||||||||||
| Non-vested at January 1, 2024 | — | $ | — | ||||||||
| Granted | — | — | |||||||||
| Vested | — | — | |||||||||
| Non-vested at December 31, 2024 | — | — | |||||||||
| Non-vested at January 1, 2023 | 13,925 | $ | 30.47 | ||||||||
| Granted | 5,164 | 31.47 | |||||||||
| Vested | (19,089) | 30.74 | |||||||||
| Non-vested at December 31, 2023 | — | — | |||||||||
| Non-vested at January 1, 2022 | 14,007 | $ | 28.42 | ||||||||
| Granted | 4,441 | 33.78 | |||||||||
| Vested | (4,523) | 27.35 | |||||||||
| Non-vested at December 31, 2022 | 13,925 | 30.47 | |||||||||
The following table presents information on the amounts expensed related to Restricted Stock Units awarded pursuant to the Long Term Incentive Plan for the years ended December 31, 2024, 2023 and 2022.
| 2024 | 2023 | 2022 | ||||||||||||||||||
| Amount Expensed During the Year | $ | — | $ | 321 | $ | 141 | ||||||||||||||
| Compensation Costs for Non-vested Awards Not Yet Recognized | — | — | 158 | |||||||||||||||||
Employee Stock Purchase Plan
In April 2023, Arrow suspended the operation of the ESPP as a result of the now resolved delay in filing the 2022 Form 10-K and the 2023 Q1 Form 10-Q and the related effects under applicable securities laws. In October 2023, the Board of Directors approved the adoption of the 2023 ESPP, which is intended to satisfy the requirements of Section 423 of the Internal Revenue Code. Under this plan, the amount of the discount is 10%. Arrow previously sponsored an ESPP under which employees purchased 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. The new qualified 2023 ESPP was approved by Arrow shareholders at the 2024 annual meeting of shareholders.
Director Stock Plan
Arrow maintains a director stock plan, pursuant to which a portion of the directors’ fees, as determined by the Board in its sole discretion, is paid to the directors in shares of Company common stock, as opposed to cash or any other form of compensation, subject to applicable law. Each director may elect to receive a greater amount or percentage of his or her directors’ fees payable in common stock from the portion that would otherwise have been payable in cash to the director.
Employee Stock Ownership Plan
Arrow maintains an employee stock ownership plan. Substantially all employees of Arrow and its subsidiaries are eligible to participate upon satisfaction of applicable service requirements. The Company makes voluntary cash contributions to the Plan each year.
Schedule of ESOP Compensation Expense
| 2024 | 2023 | 2022 | ||||||||||||||||||
| ESOP Compensation Expense | $ | 1,879 | $ | 1,540 | $ | 1,457 | ||||||||||||||
About Stock Compensation Disclosures
Stock-based compensation disclosures detail the equity awards granted to employees and executives — including stock options, restricted stock units (RSUs), and performance shares — along with the valuation methods and assumptions used to expense them. This section reveals the true cost of talent retention and the alignment between management incentives and shareholder interests.
Key signals: total unrecognized compensation expense and its expected recognition period signal future earnings headwinds from already-granted awards. For stock options, examine Black-Scholes assumptions — expected volatility, risk-free rate, and expected term — as understating any of these reduces reported compensation expense. Compare stock compensation expense as a percentage of revenue against peers to assess dilution cost. Watch vesting schedules for acceleration clauses tied to change-of-control events. Performance-based awards with undemanding targets may indicate weak governance. Add back stock compensation to operating cash flow to calculate a more conservative free cash flow figure.