Fair Value of Financial Instruments

12 Months Ended

Dec. 31, 2011

Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]

Fair Value Disclosures [Text Block]

FAIR VALUE OF FINANCIAL INSTRUMENTS (In Thousands)

FASB ASC Subtopic 820-10 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (GAAP) and requires certain disclosures about fair value measurements.  We do not have any nonfinancial assets or liabilities measured at fair value. The only assets or liabilities that Arrow measured at fair value on a recurring basis at December 31, 2011 and 2010 were securities available-for-sale.  Arrow held no securities or liabilities for trading on such date.  For information on fair value measurements, including descriptions of level 1, 2 and 3 of the fair value hierarchy and the valuation methods employed by Arrow, see Note 1 - “Summary of Significant Accounting Policies.”  The fair value measurement of securities available-for-sale on such date was as follows:

			Fair Value Measurements at Reporting Date Using:
Description	Total		Quoted Prices In Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
December 31, 2011
Securities Available-for Sale:
U.S. Agency Obligations	$	116,393	$	—	$	116,393	$	—
State and Municipal Obligations	44,999		—		44,999		—
Collateralized Mortgage Obligations - Residential	149,669		—		149,669		—
Mortgage-Backed Securities - Residential	243,043		—		243,043		—
Corporate and Other Debt Securities	1,015		—		1,015		—
Mutual Funds and Equity Securities	1,419		257		1,162		—
Total Securities Available-for-Sale	$	556,538	$	257	$	556,281	$	—
December 31, 2010
Securities Available-for Sale:
U.S. Agency Obligations	$	98,173	$	—	$	98,173	$	—
State and Municipal Obligations	89,528		—		89,528		—
Collateralized Mortgage Obligations - Residential	166,964		—		166,964		—
Mortgage-Backed Securities - Residential	159,926		—		159,926		—
Corporate and Other Debt Securities	1,417		—		1,134		283
Mutual Funds and Equity Securities	1,356		421		935		—
Total Securities Available-for Sale	$	517,364	$	421	$	516,660	$	283

The fair value of level 1 securities available-for-sale are based on unadjusted, quoted market prices from exchanges in active markets. The fair value of level 2 securities available-for-sale are based on an independent bond and equity pricing service for identical assets or significantly similar securities and an independent equity pricing service for equity securities not actively traded at December 31, 2011.  The pricing services use a variety of techniques to arrive at fair value including market maker bids, quotes and pricing models.  Inputs to the pricing models include recent trades, benchmark interest rates, spreads and actual and projected cash flows.  There were no assets or liabilities measured at fair value on a nonrecurring basis at December 31, 2011 and 2010.  

The fair value of level 3 securities available-for-sale at December 31, 2010, in the table above, included one trust preferred pooled security.   In our analysis of fair value, we determined that the market for this security was inactive.  We reviewed the collateral within the pool and performed a discounted cash flow analysis using additional value estimates from unobservable inputs including expected cash flows after estimated deferrals and defaults.  The discount rate used was based on a market based rate of return including an assumed risk premium for securities with similar credit characteristics plus a market price adjustment for the small size and lack of an established market for this type of security.

The following table is a reconciliation of the beginning and ending balances for 2011 and 2010 of the Level 3 assets of Arrow, i.e., as to which fair value is measured using significant unobservable inputs, all of which are securities available-for-sale:

	2011			2010
Beginning Balance	$	283		$	305
Principal payment received	(331		)	(54		)
Total net losses (realized/unrealized) included in other comprehensive income	48			32
Ending Balance	$	—		$	283

There was no other-than-temporary impairment of the assets in the table above during 2011 or 2010.  The only assets or liabilities that Arrow measured at fair value on a nonrecurring basis on December 31, 2011 and 2010 was other real estate owned:

			Fair Value Measurements Using:
Other Real Estate Owned and Repossessed Assets	Total		Quoted Prices In Active Markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)	Total Gains (Losses)
December 31, 2011	$	516	$—	$	516	$—	$—
December 31, 2010	58		—	58		—	—

Other assets which might have been included in this table include mortgage servicing rights, goodwill and other intangible assets.  Arrow evaluates each of these assets for impairment on a quarterly basis, with no impairment recognized for these assets at December 31, 2011 and 2010.

The following table presents a summary at December 31 of the carrying amount and fair value of Arrow’s financial instruments not carried at fair value or an amount approximating fair value:

	2011				2010
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Cash and Due from Banks	$	29,598	$	29,598	$	25,961	$	25,961
Interest-Bearing Deposits at Banks	14,138		14,138		5,118		5,118
Securities Available-for-Sale (Note 3)	556,538		556,538		517,364		517,364
Securities Held-to-Maturity (Note 3)	150,688		159,059		159,938		162,713
Other Investments	6,722		6,722		8,602		8,602
Net Loans (Note 4)	1,116,454		1,141,310		1,130,819		1,158,129
Non-Maturity Deposits	1,291,388		1,291,388		1,165,599		1,165,599
Time Deposits (Note 7)	352,658		359,461		368,405		377,224
Federal Funds Purchased and Securities Sold Under   Agreements to Repurchase	26,293		26,293		53,214		53,214
FHLBNY Advances (Note 9)	82,000		83,553		130,000		134,676
Junior Subordinated Obligations Issued to    Unconsolidated Subsidiary Trusts (Note 10)	20,000		20,000		20,000		20,000
Accrued Interest Receivable	6,082		6,082		6,512		6,512
Accrued Interest Payable	1,147		1,147		1,957		1,957

Securities held-to-maturity are fair valued utilizing an independent bond pricing service for identical assets or significantly similar securities.  The pricing service uses a variety of techniques to arrive at fair value including market maker bids, quotes and pricing models.  Inputs to the pricing models include recent trades, benchmark interest rates, spreads and actual and projected cash flows.

Fair values for loans are estimated for portfolios of loans with similar financial characteristics.  Loans are segregated by type such as commercial, commercial real estate, residential mortgage, indirect and other consumer loans.  Each loan category is further segmented into fixed and adjustable interest rate terms and by performing and nonperforming categories.  The fair value of performing loans is calculated by discounting scheduled cash flows through the estimated maturity using estimated market discount rates that reflect the credit and interest rate risk inherent in the loan.  The estimate of maturity is based on historical experience with repayments for each loan classification, modified, as required, by an estimate of the effect of current economic and lending conditions.   Fair value for nonperforming loans is generally based on recent external appraisals.  If appraisals are not available, estimated cash flows are discounted using a rate commensurate with the risk associated with the estimated cash flows.  Assumptions regarding credit risk, cash flows and discount rates are judgmentally determined using available market information and specific borrower information.

The fair value of time deposits is based on the discounted value of contractual cash flows, except that the fair value is limited to the extent that the customer could redeem the certificate after imposition of a premature withdrawal penalty.  The discount rates are estimated using the FHLBNY yield curve, which is considered representative of Arrow’s time deposit rates.

The fair value of FHLBNY advances is estimated based on the discounted value of contractual cash flows.  The discount rate is estimated using current rates on FHLBNY advances with similar maturities and call features.

Based on Arrow’s capital adequacy, the book value of the outstanding trust preferred securities (Junior Subordinated Obligations Issued to Unconsolidated Subsidiary Trusts) are considered to approximate fair value since the interest rates are variable (indexed to LIBOR) and Arrow is well-capitalized.