UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended March 31, 2017

or

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 0-12507

ARROW FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)

New York	22-2448962
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
250 GLEN STREET, GLENS FALLS, NEW YORK 12801
(Address of principal executive offices)   (Zip Code)
Registrant’s telephone number, including area code:   (518) 745-1000

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x  Yes     No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  x  Yes      No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	Accelerated filer   x
Non-accelerated filer	(Do not check if a smaller reporting company)
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standard provided pursuant to Section 13(a) of the Exchange Act. __

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes      x  No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class	Outstanding as of April 28, 2017
Common Stock, par value $1.00 per share	13,504,791

ARROW FINANCIAL CORPORATION

FORM 10-Q

TABLE OF CONTENTS

	Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements	3
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	33
Item 3. Quantitative and Qualitative Disclosures About Market Risk	55
Item 4. Controls and Procedures	55
PART II - OTHER INFORMATION
Item 1. Legal Proceedings	56
Item 1.A. Risk Factors	56
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	56
Item 3. Defaults Upon Senior Securities	56
Item 4. Mine Safety Disclosures	56
Item 5. Other Information	56
Item 6. Exhibits	57
SIGNATURES	58

# 2

PART I - FINANCIAL INFORMATION

ARROW FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In Thousands, Except Share and Per Share Amounts) (Unaudited)
	March 31, 2017			December 31, 2016			March 31, 2016
ASSETS
Cash and Due From Banks	$	50,158		$	43,024		$	30,663
Interest-Bearing Deposits at Banks	14,645			14,331			30,048
Investment Securities:
Available-for-Sale	347,159			346,996			388,247
Held-to-Maturity (Approximate Fair Value of $335,105 at March 31, 2017; $343,751 at December 31, 2016; and $324,337 at March 31, 2016)	335,211			345,427			315,284
Other Investments	6,826			10,912			5,149
Loans	1,810,805			1,753,268			1,622,728
Allowance for Loan Losses	(17,216		)	(17,012		)	(16,287		)
Net Loans	1,793,589			1,736,256			1,606,441
Premises and Equipment, Net	26,585			26,938			27,142
Goodwill	21,873			21,873			21,873
Other Intangible Assets, Net	2,575			2,696			2,999
Other Assets	57,765			56,789			51,025
Total Assets	$	2,656,386		$	2,605,242		$	2,478,871
LIABILITIES
Noninterest-Bearing Deposits	$	402,506		$	387,280		$	352,624
Interest-Bearing Checking Accounts	959,170			877,988			962,103
Savings Deposits	696,625			651,965			611,178
Time Deposits over $250,000	30,993			32,878			21,677
Other Time Deposits	167,242			166,435			167,479
Total Deposits	2,256,536			2,116,546			2,115,061
Federal Funds Purchased and Securities Sold Under Agreements to Repurchase	32,035			35,836			45,155
Federal Home Loan Bank Overnight Advances	32,000			123,000			—
Federal Home Loan Bank Term Advances	55,000			55,000			55,000
Junior Subordinated Obligations Issued to Unconsolidated Subsidiary Trusts	20,000			20,000			20,000
Other Liabilities	24,704			22,008			22,952
Total Liabilities	2,420,275			2,372,390			2,258,168
STOCKHOLDERS’ EQUITY
Preferred Stock, $5 Par Value; 1,000,000 Shares Authorized	—			—			—
Common Stock, $1 Par Value; 20,000,000 Shares Authorized (17,943,201 Shares Issued and Outstanding at March 31, 2017; 17,943,201 at December 31, 2016 and 17,420,776 at March 31, 2016)	17,943			17,943			17,421
Additional Paid-in Capital	271,517			270,880			251,510
Retained Earnings	31,901			28,644			35,449
Unallocated ESOP Shares (19,466 Shares at March 31, 2017; 19,466 Shares at December 31, 2016 and 47,090 Shares at March 31, 2016)	(400		)	(400		)	(950		)
Accumulated Other Comprehensive Loss	(6,680		)	(6,834		)	(5,436		)
Treasury Stock, at Cost (4,442,292 Shares at March 31, 2017; 4,441,093 Shares at December 31, 2016 and 4,402,128 Shares at March 31, 2016)	(78,170		)	(77,381		)	(77,291		)
Total Stockholders’ Equity	236,111			232,852			220,703
Total Liabilities and Stockholders’ Equity	$	2,656,386		$	2,605,242		$	2,478,871

See Notes to Unaudited Interim Consolidated Financial Statements.

# 3

ARROW FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (In Thousands, Except Per Share Amounts) (Unaudited)
	Three Months Ended March 31,
	2017		2016
INTEREST AND DIVIDEND INCOME
Interest and Fees on Loans	$	16,402	$	15,024
Interest on Deposits at Banks	60		32
Interest and Dividends on Investment Securities:
Fully Taxable	1,990		2,087
Exempt from Federal Taxes	1,545		1,483
Total Interest and Dividend Income	19,997		18,626
INTEREST EXPENSE
Interest-Bearing Checking Accounts	331		310
Savings Deposits	291		222
Time Deposits over $250,000	55		19
Other Time Deposits	228		237
Federal Funds Purchased and Securities Sold Under Agreements to Repurchase	7		5
Federal Home Loan Bank Advances	445		309
Junior Subordinated Obligations Issued to Unconsolidated Subsidiary Trusts	179		161
Total Interest Expense	1,536		1,263
NET INTEREST INCOME	18,461		17,363
Provision for Loan Losses	358		401
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES	18,103		16,962
NONINTEREST INCOME
Income From Fiduciary Activities	2,018		1,931
Fees for Other Services to Customers	2,256		2,237
Insurance Commissions	2,198		2,208
Net Gain on Sales of Loans	45		180
Other Operating Income	178		319
Total Noninterest Income	6,695		6,875
NONINTEREST EXPENSE
Salaries and Employee Benefits	9,008		8,122
Occupancy Expenses, Net	2,544		2,463
FDIC Assessments	226		313
Other Operating Expense	3,697		3,472
Total Noninterest Expense	15,475		14,370
INCOME BEFORE PROVISION FOR INCOME TAXES	9,323		9,467
Provision for Income Taxes	2,692		2,918
NET INCOME	$	6,631	$	6,549
Average Shares Outstanding 1:
Basic	13,484		13,343
Diluted	13,594		13,379
Per Common Share:
Basic Earnings	$	0.49	$	0.49
Diluted Earnings	0.49		0.49

2016 Share and Per Share Amounts have been restated for the September 29, 2016 3% stock dividend.

See Notes to Unaudited Interim Consolidated Financial Statements.

# 4

ARROW FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In Thousands) (Unaudited)
	Three Months Ended March 31,
	2017			2016
Net Income	$	6,631		$	6,549
Other Comprehensive Income, Net of Tax:
Net Unrealized Securities Holding Gains      Arising During the Period	47			2,437
Amortization of Net Retirement Plan Actuarial Loss	109			101
Accretion of Net Retirement Plan Prior      Service Credit	(2		)	(2		)
Other Comprehensive Income	154			2,536
Comprehensive Income	$	6,785		$	9,085

See Notes to Unaudited Interim Consolidated Financial Statements.

# 5

ARROW FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(In Thousands, Except Share and Per Share Amounts)

(Unaudited)

	Common Stock		Additional Paid-In Capital		Retained Earnings			Unallo-cated ESOP Shares			Accumu-lated Other Com- prehensive Loss			Treasury Stock			Total
Balance at December 31, 2016	$	17,943	$	270,880	$	28,644		$	(400	)	$	(6,834	)	$	(77,381	)	$	232,852
Net Income	—		—		6,631			—			—			—			6,631
Other Comprehensive Income	—		—		—			—			154			—			154
Cash Dividends Paid, $.250 per Share	—		—		(3,374		)	—			—			—			(3,374		)
Stock Options Exercised, Net  (16,721 Shares)	—		187		—			—			—			201			388
Shares Issued Under the Directors’ Stock   Plan  (554 Shares)	—		14		—			—			—			8			22
Shares Issued Under the Employee Stock   Purchase Plan  (3,049 Shares)	—		69		—			—			—			37			106
Shares Issued for Dividend   Reinvestment Plans (12,447 Shares)	—		284		—			—			—			141			425
Stock-Based Compensation Expense	—		83		—			—			—			—			83
Purchase of Treasury Stock   (33,970 Shares)	—		—		—			—			—			(1,176		)	(1,176		)
Balance at March 31, 2017	$	17,943	$	271,517	$	31,901		$	(400	)	$	(6,680	)	$	(78,170	)	$	236,111
Balance at December 31, 2015	$	17,421	$	250,680	$	32,139		$	(1,100	)	$	(7,972	)	$	(77,197	)	$	213,971
Net Income	—		—		6,549			—			—			—			6,549
Other Comprehensive Income	—		—		—			—			2,536			—			2,536
Cash Dividends Paid, $.243 per Share 1	—		—		(3,239		)	—			—			—			(3,239		)
Stock Options Exercised, Net  (23,003 Shares)	—		320		—			—			—			227			547
Shares Issued Under the Employee Stock   Purchase Plan  (4,400 Shares)	—		69		—			—			—			43			112
Shares Issued for Dividend   Reinvestment Plans (16,645 Shares)	—		275		—			—			—			163			438
Stock-Based Compensation Expense	—		74		—			—			—			—			74
Tax Benefit for Disposition of Stock Options	—		21		—			—			—			—			21
Purchase of Treasury Stock  (20,105 Shares)	—		—		—			—			—			(527		)	(527		)
Allocation of ESOP Stock  (8,185 Shares)	—		71		—			150			—			—			221
Balance at March 31, 2016	$	17,421	$	251,510	$	35,449		$	(950	)	$	(5,436	)	$	(77,291	)	$	220,703

¹ Cash dividends paid per share have been adjusted for the September 29, 20163.0% stock dividend.

See Notes to Unaudited Interim Consolidated Financial Statements.

# 6

ARROW FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in Thousands)

(Unaudited)

	Three Months Ended March 31,
Cash Flows from Operating Activities:	2017			2016
Net Income	$	6,631		$	6,549
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
Provision for Loan Losses	358			401
Depreciation and Amortization	1,524			1,576
Allocation of ESOP Stock	—			221
Loans Originated and Held-for-Sale	(2,186		)	(5,802		)
Proceeds from the Sale of Loans Held-for-Sale	1,818			5,773
Net Gains on the Sale of Loans	(45		)	(180		)
Net Losses on the Sale of Premises and Equipment, Other Real Estate Owned and Repossessed Assets	7			49
Contributions to Retirement Benefit Plans	(165		)	(184		)
Deferred Income Tax Benefit	(82		)	(4		)
Shares Issued Under the Directors’ Stock Plan	22			—
Stock-Based Compensation Expense	83			74
Tax Benefit from Exercise of Stock Options	45			—
Net Increase in Other Assets	(886		)	(2,983		)
Net Increase in Other Liabilities	2,817			4,965
Net Cash Provided By Operating Activities	9,941			10,455
Cash Flows from Investing Activities:
Proceeds from the Sale of Securities Available-for-Sale	—			22
Proceeds from the Maturities and Calls of Securities Available-for-Sale	11,826			17,503
Purchases of Securities Available-for-Sale	(12,324		)	(11		)
Proceeds from the Maturities and Calls of Securities Held-to-Maturity	10,474			9,213
Purchases of Securities Held-to-Maturity	(556		)	(4,166		)
Net Increase in Loans	(57,637		)	(48,973		)
Proceeds from the Sales of Premises and Equipment, Other Real Estate Owned and Repossessed Assets	304			218
Purchase of Premises and Equipment	(247		)	(303		)
Proceeds from the Sale of a Subsidiary, Net	23			23
Net Decrease in Other Investments	4,086			3,690
Net Cash Used By Investing Activities	(44,051		)	(22,784		)
Cash Flows from Financing Activities:
Net Increase in Deposits	139,990			84,638
Net Decrease in Short-Term Federal Home Loan Bank Borrowings	(91,000		)	—
Net Decrease in Short-Term Borrowings	(3,801		)	(60,018		)
Purchase of Treasury Stock	(1,176		)	(527		)
Stock Options Exercised, Net	388			547
Shares Issued Under the Employee Stock Purchase Plan	106			112
Tax Benefit from Exercise of Stock Options	—			21
Shares Issued for Dividend Reinvestment Plans	425			438
Cash Dividends Paid	(3,374		)	(3,239		)
Net Cash Provided By Financing Activities	41,558			21,972
Net Increase in Cash and Cash Equivalents	7,448			9,643
Cash and Cash Equivalents at Beginning of Period	57,355			51,068
Cash and Cash Equivalents at End of Period	$	64,803		$	60,711
Supplemental Disclosures to Statements of Cash Flow Information:
Interest on Deposits and Borrowings	$	1,539		$	1,270
Income Taxes	294			726
Non-cash Investing and Financing Activity:
Transfer of Loans to Other Real Estate Owned and Repossessed Assets	359			254

See Notes to Unaudited Interim Consolidated Financial Statements.

# 7

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1.     ACCOUNTING POLICIES

In the opinion of the management of Arrow Financial Corporation (Arrow), the accompanying unaudited consolidated interim financial statements contain all of the adjustments necessary to present fairly the financial position as of March 31, 2017, December 31, 2016 and March 31, 2016; the results of operations for the three-month period ended March 31, 2017; the consolidated statements of comprehensive income for the three-month period ended March 31, 2017; the changes in stockholders' equity for the three-month periods ended March 31, 2017 and 2016; and the cash flows for the three-month periods ended March 31, 2017 and 2016. All such adjustments are of a normal recurring nature. Certain prior period amounts have been reclassified to conform to the current presentation, including a new requirement to present time deposits with balances greater than $250,000 which were previously presented as balances of $100,000 or greater. The preparation of financial statements requires the use of management estimates. The unaudited consolidated interim financial statements should be read in conjunction with the audited annual consolidated financial statements of Arrow for the year ended December 31, 2016, included in Arrow's 2016 Form 10-K.

New Accounting Standards Updates (ASU): Effective January 1, 2017, Arrow adopted FASB accounting standard ASU 2016-09 "Improvements to Employee Share-Based Payment Accounting," which makes several revisions to equity compensation accounting. Under the new guidance all excess tax benefits and deficiencies that occur when an award is exercised or expires are recognized in income tax expense as discrete period items. Previously, these transactions were typically recorded directly within equity. Excess tax benefits are also recognized at the time an award is exercised compared to the previous requirement to delay recognition until the deduction reduces taxes payable. All tax related cash flows recognized on stock-based compensation expense are classified as an operating activity in our consolidated statements of cash flows on a prospective basis. Accordingly, prior periods have not been adjusted. ASU 2016-09 also provides an accounting policy election to recognize forfeitures of awards as they occur when estimating stock-based compensation expense rather than the previous requirement to estimate forfeitures from inception. Further, ASU 2016-09 permits employers to use a net-settlement feature to withhold taxes on equity compensation awards up to the maximum statutory tax rate without affecting the equity classification of the award. Under previous guidance, withholding of equity awards in excess of the minimum statutory requirement resulted in liability classification for the entire award. The related cash remittance by the employer for employee taxes is treated as a financing activity in the statement of cash slows.

The annual effect of the 2017 tax provision will primarily depend upon the share price of Arrow common stock which affects the probability of exercise of certain stock options and the magnitude of windfalls upon exercise. Income tax benefits from stock options exercised in the period reduced our effective tax rate for the quarter ended March 31, 2017, which resulted in an increase in earnings of less than $45 thousand, representing earnings per share of less than $0.01.

In addition, during 2017, through the date of this report, the FASB issued 8 accounting standards updates. Some of the standards listed below did not have an immediate impact on Arrow, but could in the future.

ASU 2014-09 - Revenue from Contracts with Customers will change revenue recognition guidance under GAAP and is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects consideration to which the entity expects to be entitled in exchange for those goods and services. The ASU also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. For financial reporting purposes, the standard allows for either full retrospective adoption, meaning the standard is applied to all of the periods presented, or modified retrospective adoption, meaning the standard is applied only to the most current period presented in the financial statements with the cumulative effect of initially applying the standard recognized at the date of initial application. Initially, ASU 2014-09 was effective for Arrow on January 1, 2017; however, in August 2015, the FASB issued ASU No. 2015-14 - Revenue from Contracts with Customers - Deferral of the Effective Date, which deferred the effective date to January 1, 2018. Early adoption is not permitted. In addition, the FASB has begun to issue targeted updates to clarify specific implementation issues of ASU 2014-09. These updates include ASU No. 2016-08 - Principal versus Agent Considerations (Reporting Revenue Gross versus Net), ASU No. 2016-10 - Identifying Performance Obligations and Licensing, ASU No. 2016-12 - Narrow-Scope Improvements and Practical Expedients, and ASU No. 2016-20 - Technical Corrections and Improvements to Top 606 - Revenue from Contract with Customers. We do not expect that the adoption of this change in accounting for revenue will have a material impact on our financial position or the results of operations in periods subsequent to its adoption.

ASU 2016-01 "Recognition and Measurement of Financial Assets and Financial Liabilities" will significantly change the income statement impact of equity investments. For Arrow, the standard is effective for the first quarter of 2018, and will require that equity investments be measured at fair value, with changes in fair value measured in net income. As of March 31, 2017, we hold a $1.1 million cost basis in a small portfolio of equity investments and we do not expect that the adoption of this change in accounting for equity investments will have a material impact on our financial position or the results of operations in periods subsequent to its adoption.

ASU 2016-02 "Leases" will require the recognition of operating leases. For Arrow, the standard becomes effective in the first quarter of 2019. We do not expect that the adoption of this change in accounting for operating leases will have a material impact on our financial position or the results of operations in periods subsequent to its adoption. As of March 31, 2017, we have less than $2.3 million in minimum lease payments for existing operating leases of branch and insurance locations with varying expiration dates from 2017 to 2031.

ASU 2016-13 "Financial Instruments - Credit Losses" will change the way we and other financial entities recognize losses on assets measured at amortized costs and change the method for recognizing credit losses on securities available-for-sale. Currently, loan losses are recognized using an "incurred loss" methodology. Under ASU 2016-13, the methodology will change to a current expected loss over the life of the loan. Currently, credit losses on available-for-sale securities reduce the carrying value of the instrument and cannot be reversed. Under ASU 2016-13, the amount of the credit loss is carried as a valuation allowance and can be reversed. For Arrow, the standard is effective for the first quarter of 2020 and early adoption is allowed in 2019. The Company is currently evaluating the impact

# 8

of the pending adoption of the ASU on its consolidated financial statements. The initial adjustment will not be reported in earnings, but as the cumulative effect of a change in accounting principle. At this time we have not calculated the estimated impact that this Update will have on our Allowance for Loan Losses, however, we anticipate it will have a significant impact on the methodology process we utilize to calculate the allowance.

ASU 2017-01 "Business Combinations" defines when a set of assets and activities constitutes a business for the purposes of determining whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. Currently, the three elements required to be present in a business are inputs, processes, and outputs. The amendments in this Update allow for a business to consist of inputs, processes, and the ability to create output. For Arrow, the standard becomes effective in the first quarter of 2018. This Update will likely have no effect on our accounting for acquisitions and dispositions of businesses.

ASU 2017-04 "Intangibles-Goodwill and Other" changes the procedures for evaluating impairment of goodwill. Prior to this Update, entities were required to perform procedures to determine the fair value of the underlying assets and liabilities following the guidance for determining the fair value of assets and liabilities in a business combination. This additional step to impairment testing has been eliminated. Under the amendments in this Update, entities should perform goodwill impairment testing by comparing the fair value of a reporting unit to its carrying value. This amendment should reduce the cost and complexity of evaluating goodwill for impairment. For Arrow, the standard becomes effective in the first quarter of 2019, however, early adoption is permitted. This amendment will not affect our assessment of goodwill impairment since we currently perform the analysis of comparing carrying value to fair value of our reporting units that have goodwill and we have not had to perform a Step 2 Impairment Test to date.

ASU 2017-07 "Compensation-Retirement Benefits" improves the presentation of net periodic pension cost and net periodic post-retirement benefit cost by requiring that an employer disaggregate the service cost component from the other components of net benefit cost. The amendments also provide explicit guidance on how to present the service cost component and the other components of net benefit cost in the income statement and allow only the service cost component of net benefit cost to be eligible for capitalization. For Arrow, the standard becomes effective in the first quarter of 2018, however, early adoption is permitted. We do not expect that the adoption of this change in accounting for pension costs will have a material impact on our financial position or the results of operations in periods subsequent to its adoption.

ASU 2017-08 "Receivables—Nonrefundable Fees and Other Costs" amends the amortization period for certain purchased callable debt securities held at a premium. This shortens the amortization period for the premium to the earliest call date. Under current generally accepted accounting principles (GAAP), entities generally amortize the premium as an adjustment of yield over the contractual life of the instrument. For Arrow, the standard becomes effective in the first quarter of 2019, however, early adoption is permitted as early as the first quarter of 2017. We do not expect that the adoption of this change in accounting for certain callable debt securities will have a material impact on our financial position or the results of operations in periods subsequent to its adoption.

# 9

Note 2.    INVESTMENT SECURITIES (In Thousands)

The following table is the schedule of Available-For-Sale Securities at March 31, 2017, December 31, 2016 and March 31, 2016:

Available-For-Sale Securities
	U.S. Government & Agency Obligations		State and Municipal Obligations		Mortgage- Backed Securities - Residential		Corporate and Other Debt Securities		Mutual Funds and Equity Securities		Total Available- For-Sale Securities
March 31, 2017
Available-For-Sale Securities,   at Amortized Cost	$	147,012	$	25,467	$	170,601	$	3,501	$	1,120	$	347,701
Available-For-Sale Securities,   at Fair Value	147,231		25,507		169,728		3,298		1,395		347,159
Gross Unrealized Gains	270		40		934		—		275		1,519
Gross Unrealized Losses	52		—		1,806		203		—		2,061
Available-For-Sale Securities,   Pledged as Collateral											295,797
Maturities of Debt Securities,   at Amortized Cost:
Within One Year	$	—	$	15,395	$	4,226	$	2,501	$	—	$	22,122
From 1 - 5 Years	147,012		9,071		112,712		—		—		268,795
From 5 - 10 Years	—		442		53,662		—		—		54,104
Over 10 Years	—		560		—		1,000		—		1,560
Maturities of Debt Securities,   at Fair Value:
Within One Year	$	—	$	15,398	$	4,287	$	2,498	$	—	$	22,183
From 1 - 5 Years	147,231		9,108		112,296		—		—		268,635
From 5 - 10 Years	—		441		53,145		—		—		53,586
Over 10 Years	—		560		—		800		—		1,360
Securities in a Continuous   Loss Position, at Fair Value:
Less than 12 Months	$	42,937	$	828	$	127,931	$	2,498	$	—	$	174,194
12 Months or Longer	—		—		—		800		—		800
Total	$	42,937	$	828	$	127,931	$	3,298	$	—	$	174,994
Number of Securities in a   Continuous Loss Position	11		5		41		4		—		61
Unrealized Losses on   Securities in a Continuous   Loss Position:
Less than 12 Months	$	52	$	—	$	1,806	$	3	$	—	$	1,861
12 Months or Longer	—		—		—		200		—		200
Total	$	52	$	—	$	1,806	$	203	$	—	$	2,061
Disaggregated Details:
US Treasury Obligations,   at Amortized Cost	$	54,649
US Treasury Obligations, at Fair Value	54,695
US Agency Obligations, at Amortized Cost	92,363
US Agency Obligations, at Fair Value	92,536
US Government Agency   Securities, at Amortized Cost					$	1,616
US Government Agency   Securities, at Fair Value					1,625
Government Sponsored Entity   Securities, at Amortized Cost					168,985
Government Sponsored Entity Securities, at Fair Value					168,103

# 10

Available-For-Sale Securities
	U.S. Government & Agency Obligations		State and Municipal Obligations		Mortgage- Backed Securities - Residential		Corporate and Other Debt Securities		Mutual Funds and Equity Securities		Total Available- For-Sale Securities
December 31, 2016
Available-For-Sale Securities,   at Amortized Cost	$	147,110	$	27,684	$	168,189	$	3,512	$	1,120	$	347,615
Available-For-Sale Securities,   at Fair Value	147,377		27,690		167,239		3,308		1,382		346,996
Gross Unrealized Gains	304		24		986		—		262		1,576
Gross Unrealized Losses	37		18		1,936		204		—		2,195
Available-For-Sale Securities,   Pledged as Collateral,   at Fair Value											262,852
Securities in a Continuous   Loss Position, at Fair Value:
Less than 12 Months	$	70,605	$	12,165	$	126,825	$	500	$	—	$	210,095
12 Months or Longer	—		7,377		—		2,809		—		10,186
Total	$	70,605	$	19,542	$	126,825	$	3,309	$	—	$	220,281
Number of Securities in a   Continuous Loss Position	19		84		40		4		—		147
Unrealized Losses on   Securities in a Continuous   Loss Position:
Less than 12 Months	$	37	$	13	$	1,936	$	1	$	—	$	1,987
12 Months or Longer	—		5		—		203		—		208
Total	$	37	$	18	$	1,936	$	204	$	—	$	2,195
Disaggregated Details:
US Treasury Obligations,   at Amortized Cost	$	54,701
US Treasury Obligations, at Fair Value	54,706
US Agency Obligations, at Amortized Cost	92,409
US Agency Obligations, at Fair Value	92,671
US Government Agency   Securities, at Amortized Cost					$	3,694
US Government Agency   Securities, at Fair Value					3,724
Government Sponsored Entity   Securities, at Amortized Cost					164,495
Government Sponsored Entity Securities, at Fair Value					163,515

# 11

Available-For-Sale Securities
	U.S. Government & Agency Obligations		State and Municipal Obligations		Mortgage- Backed Securities - Residential		Corporate and Other Debt Securities		Mutual Funds and Equity Securities		Total Available- For-Sale Securities
March 31, 2016
Available-For-Sale Securities,   at Amortized Cost	$	155,896	$	49,382	$	164,905	$	11,903	$	1,120	$	383,206
Available-For-Sale Securities,   at Fair Value	157,646		49,543		168,110		11,715		1,233		388,247
Gross Unrealized Gains	1,750		161		3,224		15		113		5,263
Gross Unrealized Losses	—		—		19		203		—		222
Available-For-Sale Securities,   Pledged as Collateral											328,123
Securities in a Continuous   Loss Position, at Fair Value:
Less than 12 Months	$	—	$	1,766	$	10,603	$	—	$	—	$	12,369
12 Months or Longer	—		—		—		1,797		—		1,797
Total	$	—	$	1,766	$	10,603	$	1,797	$	—	$	14,166
Number of Securities in a   Continuous Loss Position	—		2		9		1		—		12
Unrealized Losses on Securities   in a Continuous Loss Position:
Less than 12 Months	$	—	$	—	$	19	$	—	$	—	$	19
12 Months or Longer	—		—		—		203		—		203
Total	$	—	$	—	$	19	$	203	$	—	$	222
Disaggregated Details:
US Agency Obligations, at Amortized Cost	$	155,896
US Agency Obligations, at Fair Value	157,646
US Government Agency   Securities, at Amortized Cost					$	13,148
US Government Agency   Securities, at Fair Value					13,274
Government Sponsored Entity   Securities, at Amortized Cost					151,757
Government Sponsored Entity Securities, at Fair Value					154,836

# 12

The following table is the schedule of Held-To-Maturity Securities at March 31, 2017, December 31, 2016 and March 31, 2016:

Held-To-Maturity Securities
	State and Municipal Obligations		Mortgage- Backed Securities - Residential		Corporate and Other Debt Securities		Total Held-To Maturity Securities
March 31, 2017
Held-To-Maturity Securities,   at Amortized Cost	$	263,642	$	71,569	$	—	$	335,211
Held-To-Maturity Securities,   at Fair Value	263,255		71,850		—		335,105
Gross Unrealized Gains	2,410		298		—		2,708
Gross Unrealized Losses	2,796		17		—		2,813
Held-To-Maturity Securities,   Pledged as Collateral							316,966
Maturities of Debt Securities,   at Amortized Cost:
Within One Year	$	29,743	$	—	$	—	$	29,743
From 1 - 5 Years	85,621		64,421		—		150,042
From 5 - 10 Years	144,519		7,148		—		151,667
Over 10 Years	3,758		—		—		3,758
Maturities of Debt Securities,   at Fair Value:
Within One Year	$	29,788	$	—	$	—	$	29,788
From 1 - 5 Years	87,239		64,647		—		151,886
From 5 - 10 Years	142,472		7,203		—		149,675
Over 10 Years	3,756		—		—		3,756
Securities in a Continuous   Loss Position, at Fair Value:
Less than 12 Months	$	95,450	$	7,682	$	—	$	103,132
12 Months or Longer	657		—		—		657
Total	$	96,107	$	7,682	$	—	$	103,789
Number of Securities in a   Continuous Loss Position	251		8		—		259
Unrealized Losses on Securities    in a Continuous Loss Position:
Less than 12 Months	$	2,793	$	17	$	—	$	2,810
12 Months or Longer	3		—		—		3
Total	$	2,796	$	17	$	—	$	2,813
Disaggregated Details:
US Government Agency   Securities, at Amortized Cost			$	3,106
US Government Agency   Securities, at Fair Value			3,121
Government Sponsored Entity   Securities, at Amortized Cost			68,463
Government Sponsored Entity Securities, at Fair Value			68,729

# 13

Held-To-Maturity Securities
	State and Municipal Obligations		Mortgage- Backed Securities - Residential		Corporate and Other Debt Securities		Total Held-To Maturity Securities
December 31, 2016
Held-To-Maturity Securities,   at Amortized Cost	$	268,892	$	75,535	$	1,000	$	345,427
Held-To-Maturity Securities,   at Fair Value	267,127		75,624		1,000		343,751
Gross Unrealized Gains	2,058		258		—		2,316
Gross Unrealized Losses	3,823		169		—		3,992
Held-To-Maturity Securities,   Pledged as Collateral							321,202
Securities in a Continuous   Loss Position, at Fair Value:
Less than 12 Months	$	107,255	$	13,306	$	—	$	120,561
12 Months or Longer	12,363		—		—		12,363
Total	$	119,618	$	13,306	$	—	$	132,924
Number of Securities in a   Continuous Loss Position	347		13		—		360
Unrealized Losses on   Securities in a Continuous   Loss Position:
Less than 12 Months	$	3,129	$	169	$	—	$	3,298
12 Months or Longer	694		—		—		694
Total	$	3,823	$	169	$	—	$	3,992
Disaggregated Details:
US Government Agency   Securities, at Amortized Cost			$	3,206
US Government Agency   Securities, at Fair Value			3,222
Government Sponsored Entity   Securities, at Amortized Cost			72,329
Government Sponsored Entity Securities, at Fair Value			72,402
March 31, 2016
Held-To-Maturity Securities,   at Amortized Cost	$	224,831	$	89,453	$	1,000	$	315,284
Held-To-Maturity Securities,   at Fair Value	231,598		91,739		1,000		324,337
Gross Unrealized Gains	6,769		2,292		—		9,061
Gross Unrealized Losses	2		6		—		8
Held-To-Maturity Securities,   Pledged as Collateral							299,767
Securities in a Continuous   Loss Position, at Fair Value:
Less than 12 Months	$	648	$	3,645	$	—	$	4,293
12 Months or Longer	658		—		—		658
Total	$	1,306	$	3,645	$	—	$	4,951
Number of Securities in a   Continuous Loss Position	7		1		—		8
Unrealized Losses on   Securities in a Continuous   Loss Position:
Less than 12 Months	$	—	$	6	$	—	$	6
12 Months or Longer	2		—		—		2
Total	$	2	$	6	$	—	$	8

# 14

Held-To-Maturity Securities
	State and Municipal Obligations	Mortgage- Backed Securities - Residential		Corporate and Other Debt Securities	Total Held-To Maturity Securities
March 31, 2016
Disaggregated Details:
US Government Agency   Securities, at Amortized Cost		$	3,674
US Government Agency   Securities, at Fair Value		3,794
Government Sponsored Entity   Securities, at Amortized Cost		85,779
Government Sponsored Entity Securities, at Fair Value		87,945

In the tables above, maturities of mortgage-backed-securities - residential are included based on their expected average lives.  Actual maturities will differ from the table above because issuers may have the right to call or prepay obligations with, or without, prepayment penalties.

Securities in a continuous loss position, in the tables above for March 31, 2017, December 31, 2016 and March 31, 2016, do not reflect any deterioration of the credit worthiness of the issuing entities.  U.S. Agency issues, including agency-backed collateralized mortgage obligations and mortgage-backed securities, are all rated at least Aaa by Moody's or AA+ by Standard and Poor's.  The state and municipal obligations are general obligations supported by the general taxing authority of the issuer, and in some cases are insured. Obligations issued by school districts are supported by state aid.  For any non-rated municipal securities, credit analysis is performed in-house based upon data that has been submitted by the issuers to the NY State Comptroller. That analysis reflects satisfactory credit worthiness of the municipalities.  Corporate and other debt securities continue to be rated above investment grade according to Moody's and Standard and Poor's. Subsequent to March 31, 2017, and through the date of filing this report, there were no securities downgraded below investment grade.  

The unrealized losses on these temporarily impaired securities are primarily the result of changes in interest rates for fixed rate securities where the interest rate received is less than the current rate available for new offerings of similar securities, changes in market spreads as a result of shifts in supply and demand, and/or changes in the level of prepayments for mortgage related securities.   Because we do not currently intend to sell any of our temporarily impaired securities, and because it is not more likely-than-not that we would be required to sell the securities prior to recovery, the impairment is considered temporary.

# 15

Note 3.    LOANS (In Thousands)

Loan Categories and Past Due Loans

The following table presents loan balances outstanding as of March 31, 2017, December 31, 2016 and March 31, 2016 and an analysis of the recorded investment in loans that are past due at these dates.  Generally, Arrow considers an amortizing loan past due 30 or more days when the borrower is two payments past due. Loans held-for-sale of $896, $483 and $506 as of March 31, 2017, December 31, 2016 and March 31, 2016, respectively, are included in the residential real estate balances for current loans.

			Commercial
	Commercial		Real Estate		Consumer		Residential		Total
March 31, 2017
Loans Past Due 30-59 Days	$	189	$	—	$	3,882	$	2,021	$	6,092
Loans Past Due 60-89 Days	9		—		1,145		684		1,838
Loans Past Due 90 or more Days	120		—		335		835		1,290
Total Loans Past Due	318		—		5,362		3,540		9,220
Current Loans	118,524		435,316		546,601		701,144		1,801,585
Total Loans	$	118,842	$	435,316	$	551,963	$	704,684	$	1,810,805
Loans 90 or More Days Past Due   and Still Accruing Interest	$	—	$	—	$	—	$	—	$	—
Nonaccrual Loans	144		870		656		2,603		4,273
December 31, 2016
Loans Past Due 30-59 Days	$	112	$	121	$	5,593	$	2,368	$	8,194
Loans Past Due 60-89 Days	29		—		898		142		1,069
Loans Past Due 90 or more Days	148		—		513		1,975		2,636
Total Loans Past Due	289		121		7,004		4,485		11,899
Current Loans	104,866		431,525		530,357		674,621