10-Q

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 September 30, 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 October 31, 2017
Common Stock, par value $1.00 per share	13,920,322

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	37
Item 3. Quantitative and Qualitative Disclosures About Market Risk	65
Item 4. Controls and Procedures	66
PART II - OTHER INFORMATION
Item 1. Legal Proceedings	67
Item 1.A. Risk Factors	67
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	67
Item 3. Defaults Upon Senior Securities	67
Item 4. Mine Safety Disclosures	67
Item 5. Other Information	68
Item 6. Exhibits	68
SIGNATURES	69

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PART I - FINANCIAL INFORMATION

ARROW FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In Thousands, Except Share and Per Share Amounts) (Unaudited)
	September 30, 2017			December 31, 2016			September 30, 2016
ASSETS
Cash and Due From Banks	$	55,683		$	43,024		$	66,556
Interest-Bearing Deposits at Banks	24,983			14,331			35,503
Investment Securities:
Available-for-Sale	315,459			346,996			339,190
Held-to-Maturity (Approximate Fair Value of $343,899 at September 30, 2017; $343,751 at December 31, 2016; and $347,441 at September 30, 2016)	341,526			345,427			338,238
Other Investments	6,704			10,912			5,371
Loans	1,908,799			1,753,268			1,707,216
Allowance for Loan Losses	(17,695		)	(17,012		)	(16,975		)
Net Loans	1,891,104			1,736,256			1,690,241
Premises and Equipment, Net	26,432			26,938			26,718
Goodwill	21,873			21,873			21,873
Other Intangible Assets, Net	2,395			2,696			2,802
Other Assets	58,303			56,789			53,993
Total Assets	$	2,744,462		$	2,605,242		$	2,580,485
LIABILITIES
Noninterest-Bearing Deposits	$	448,515		$	387,280		$	381,760
Interest-Bearing Checking Accounts	967,250			877,988			993,221
Savings Deposits	696,805			651,965			629,201
Time Deposits over $250,000	28,464			32,878			45,237
Other Time Deposits	166,082			166,435			163,768
Total Deposits	2,307,116			2,116,546			2,213,187
Federal Funds Purchased and Securities Sold Under Agreements to Repurchase	61,419			35,836			38,589
Federal Home Loan Bank Overnight Advances	33,000			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	23,279			22,008			24,501
Total Liabilities	2,499,814			2,372,390			2,351,277
STOCKHOLDERS’ EQUITY
Preferred Stock, $5 Par Value; 1,000,000 Shares Authorized	—			—			—
Common Stock, $1 Par Value; 20,000,000 Shares Authorized (18,481,301 Shares Issued and Outstanding at September 30, 2017; 17,943,201 at December 31, 2016 and 17,943,201 at September 30, 2016)	18,481			17,943			17,943
Additional Paid-in Capital	289,294			270,880			269,680
Retained Earnings	22,581			28,644			25,400
Unallocated ESOP Shares (20,050 Shares at September 30, 2017; 19,466 Shares at December 31, 2016 and 38,396 Shares at September 30, 2016)	(400		)	(400		)	(750		)
Accumulated Other Comprehensive Loss	(6,135		)	(6,834		)	(5,442		)
Treasury Stock, at Cost (4,570,291 Shares at September 30, 2017; 4,441,093 Shares at December 31, 2016 and 4,479,257 Shares at September 30, 2016)	(79,173		)	(77,381		)	(77,623		)
Total Stockholders’ Equity	244,648			232,852			229,208
Total Liabilities and Stockholders’ Equity	$	2,744,462		$	2,605,242		$	2,580,485

See Notes to Unaudited Interim Consolidated Financial Statements.

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ARROW FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (In Thousands, Except Per Share Amounts) (Unaudited)
	Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016
INTEREST AND DIVIDEND INCOME
Interest and Fees on Loans	$	17,996	$	15,833	$	51,693	$	46,565
Interest on Deposits at Banks	104		34		242		100
Interest and Dividends on Investment Securities:
Fully Taxable	1,924		1,889		5,927		5,994
Exempt from Federal Taxes	1,575		1,526		4,660		4,486
Total Interest and Dividend Income	21,599		19,282		62,522		57,145
INTEREST EXPENSE
Interest-Bearing Checking Accounts	376		320		1,088		941
Savings Deposits	356		231		963		677
Time Deposits over $250,000	66		61		187		133
Other Time Deposits	241		231		702		677
Federal Funds Purchased and Securities Sold Under Agreements to Repurchase	13		9		29		24
Federal Home Loan Bank Advances	700		390		1,651		1,013
Junior Subordinated Obligations Issued to Unconsolidated Subsidiary Trusts	197		163		564		487
Total Interest Expense	1,949		1,405		5,184		3,952
NET INTEREST INCOME	19,650		17,877		57,338		53,193
Provision for Loan Losses	800		480		1,580		1,550
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES	18,850		17,397		55,758		51,643
NONINTEREST INCOME
Income From Fiduciary Activities	2,116		1,923		6,284		5,854
Fees for Other Services to Customers	2,453		2,491		7,122		7,144
Insurance Commissions	2,113		2,127		6,426		6,468
Net Gain on Securities Transactions	10		—		10		144
Net Gain on Sales of Loans	182		310		431		649
Other Operating Income	267		263		620		925
Total Noninterest Income	7,141		7,114		20,893		21,184
NONINTEREST EXPENSE
Salaries and Employee Benefits	9,251		8,693		27,343		25,223
Occupancy Expenses, Net	2,371		2,425		7,410		7,223
FDIC Assessments	225		217		679		844
Other Operating Expense	3,701		3,747		11,229		11,047
Total Noninterest Expense	15,548		15,082		46,661		44,337
INCOME BEFORE PROVISION FOR INCOME TAXES	10,443		9,429		29,990		28,490
Provision for Income Taxes	3,027		2,691		8,735		8,556
NET INCOME	$	7,416	$	6,738	$	21,255	$	19,934
Average Shares Outstanding 1:
Basic	13,889		13,810		13,889		13,775
Diluted	13,966		13,901		13,981		13,842
Per Common Share:
Basic Earnings	$	0.53	$	0.49	$	1.53	$	1.45
Diluted Earnings	0.53		0.48		1.52		1.44

¹Share and Per Share Amounts have been restated for the September 28, 20173% stock dividend.

See Notes to Unaudited Interim Consolidated Financial Statements.

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ARROW FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In Thousands) (Unaudited)
	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
Net Income	$	7,416		$	6,738		$	21,255		$	19,934
Other Comprehensive Income, Net of Tax:
Net Unrealized Securities Holding Gains (Losses)      Arising During the Period	9			(810		)	465			2,309
Reclassification Adjustments for Securities     Gains Included in Net Income	(6		)	—			(6		)	(88		)
Amortization of Net Retirement Plan Actuarial Loss	64			111			245			314
Accretion of Net Retirement Plan Prior      Service Credit	(2		)	(1		)	(5		)	(5		)
Other Comprehensive Income (Loss)	65			(700		)	699			2,530
Comprehensive Income	$	7,481		$	6,038		$	21,954		$	22,464

See Notes to Unaudited Interim Consolidated Financial Statements.

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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	—		—		21,255			—			—			—			21,255
Other Comprehensive Income	—		—		—			—			699			—			699
3% Stock Dividend (538,100 Shares)	538		16,661		(17,199		)	—			—			—			—
Cash Dividends Paid, $.728 per Share 1	—		—		(10,119		)	—			—			—			(10,119		)
Stock Options Exercised, Net  (34,489 Shares)	—		335		—			—			—			399			734
Shares Issued Under the Directors’ Stock   Plan  (3,927 Shares)	—		84		—			—			—			42			126
Shares Issued Under the Employee Stock   Purchase Plan  (10,869 Shares)	—		230		—			—			—			121			351
Shares Issued for Dividend   Reinvestment Plans (37,525 Shares)	—		843		—			—			—			413			1,256
Stock-Based Compensation Expense	—		261		—			—			—			—			261
Purchase of Treasury Stock   (83,256 Shares)	—		—		—			—			—			(2,767		)	(2,767		)
Balance at September 30, 2017	$	18,481	$	289,294	$	22,581		$	(400	)	$	(6,135	)	$	(79,173	)	$	244,648
Balance at December 31, 2015	$	17,421	$	250,680	$	32,139		$	(1,100	)	$	(7,972	)	$	(77,197	)	$	213,971
Net Income	—		—		19,934			—			—			—			19,934
Other Comprehensive Income	—		—		—			—			2,530			—			2,530
3% Stock Dividend (522,425 Shares)	522		16,415		(16,937		)	—			—			—			—
Cash Dividends Paid, $.707 per Share 1	—		—		(9,736		)	—			—			—			(9,736		)
Stock Options Exercised, Net  (80,449 Shares)	—		980		—			—			—			795			1,775
Shares Issued Under the Directors’ Stock   Plan  (3,522 Shares)	—		76		—			—			—			36			112
Shares Issued Under the Employee Stock   Purchase Plan  (13,041 Shares)	—		229		—			—			—			129			358
Shares Issued for Dividend   Reinvestment Plans (44,448 Shares)	—		862		—			—			—			440			1,302
Stock-Based Compensation Expense	—		215		—			—			—			—			215
Tax Benefit for Disposition of Stock Options	—		63		—			—			—			—			63
Purchase of Treasury Stock  (64,146 Shares)	—		—		—			—			—			(1,826		)	(1,826		)
Allocation of ESOP Stock  (17,997 Shares)	—		160		—			350			—			—			510
Balance at September 30, 2016	$	17,943	$	269,680	$	25,400		$	(750	)	$	(5,442	)	$	(77,623	)	$	229,208

¹ Cash dividends paid per share have been adjusted for the September 28, 20173% 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)

	Nine Months Ended September 30,
Cash Flows from Operating Activities:	2017			2016
Net Income	$	21,255		$	19,934
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
Provision for Loan Losses	1,580			1,550
Depreciation and Amortization	4,247			4,605
Allocation of ESOP Stock	—			510
Net Gains on the Sale of Securities Available-for-Sale	(10		)	(144		)
Loans Originated and Held-for-Sale	(14,890		)	(20,025		)
Proceeds from the Sale of Loans Held-for-Sale	14,481			19,557
Net Gains on the Sale of Loans	(431		)	(649		)
Net Losses on the Sale of Premises and Equipment, Other Real Estate Owned and Repossessed Assets	197			120
Contributions to Retirement Benefit Plans	(640		)	(534		)
Deferred Income Tax Benefit	(20		)	(464		)
Shares Issued Under the Directors’ Stock Plan	126			112
Stock-Based Compensation Expense	261			215
Tax Benefit from Exercise of Stock Options	112			—
Net Increase in Other Assets	(1,689		)	(3,045		)
Net Increase in Other Liabilities	1,819			3,427
Net Cash Provided By Operating Activities	26,398			25,169
Cash Flows from Investing Activities:
Proceeds from the Sale of Securities Available-for-Sale	10,015			10,568
Proceeds from the Maturities and Calls of Securities Available-for-Sale	43,617			65,965
Purchases of Securities Available-for-Sale	(22,503		)	(10,920		)
Proceeds from the Maturities and Calls of Securities Held-to-Maturity	39,062			42,295
Purchases of Securities Held-to-Maturity	(36,018		)	(60,786		)
Net Increase in Loans	(156,643		)	(133,616		)
Proceeds from the Sales of Premises and Equipment, Other Real Estate Owned and Repossessed Assets	830			1,743
Purchase of Premises and Equipment	(1,335		)	(1,083		)
Proceeds from the Sale of a Subsidiary, Net	72			72
Net Decrease in Other Investments	4,208			3,468
Net Cash Used By Investing Activities	(118,695		)	(82,294		)
Cash Flows from Financing Activities:
Net Increase in Deposits	190,570			182,764
Net Increase (Decrease) in Short-Term Federal Home Loan Bank Borrowings	(90,000		)	(82,000		)
Net Increase (Decrease) in Short-Term Borrowings	25,583			15,416
Purchase of Treasury Stock	(2,767		)	(1,826		)
Stock Options Exercised, Net	734			1,775
Shares Issued Under the Employee Stock Purchase Plan	351			358
Tax Benefit from Exercise of Stock Options	—			63
Shares Issued for Dividend Reinvestment Plans	1,256			1,302
Cash Dividends Paid	(10,119		)	(9,736		)
Net Cash Provided By Financing Activities	115,608			108,116
Net Increase in Cash and Cash Equivalents	23,311			50,991
Cash and Cash Equivalents at Beginning of Period	57,355			51,068
Cash and Cash Equivalents at End of Period	$	80,666		$	102,059
Supplemental Disclosures to Statements of Cash Flow Information:
Interest on Deposits and Borrowings	$	5,168		$	3,932
Income Taxes	8,404			9,761
Non-cash Investing and Financing Activity:
Transfer of Loans to Other Real Estate Owned and Repossessed Assets	1,055			856

See Notes to Unaudited Interim Consolidated Financial Statements.

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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 September 30, 2017, December 31, 2016 and September 30, 2016; the results of operations for the three- and nine-month periods ended September 30, 2017 and 2016; the consolidated statements of comprehensive income for the three- and nine-month periods ended September 30, 2017 and 2016; the changes in stockholders' equity for the nine-month periods ended September 30, 2017 and 2016; and the cash flows for the nine-month periods ended September 30, 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 flows.

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 nine months ended September 30, 2017, which resulted in an increase in earnings of approximately $112 thousand, representing earnings per share of less than $0.01.

In addition, during 2017, through the date of this report, the FASB issued 13 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 are currently in the process of identifying any required changes to our revenue recognition policies. 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 September 30, 2017, we hold $1.5 million of fair value in 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 September 30, 2017, we have less than $2.6 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

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standard is effective for the first quarter of 2020 and early adoption is allowed in 2019. The Company is currently evaluating the impact 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.

ASU 2017-09 "Compensation-Stock Compensation" provides guidance about which changes to the terms and conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. The guidance highlights the requirements for applying modification accounting and the exception criteria relating to changes in share-based payment terms. For Arrow, the standard becomes effective in the first quarter of 2018, however, early adoption is permitted as early as the third quarter of 2017. We do not expect that the adoption of this change in accounting for share-based payment awards 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 September 30, 2017, December 31, 2016 and September 30, 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
September 30, 2017
Available-For-Sale Securities,   at Amortized Cost	$	146,976	$	11,875	$	152,858	$	2,500	$	1,120	$	315,329
Available-For-Sale Securities,   at Fair Value	146,978		11,902		152,806		2,299		1,474		315,459
Gross Unrealized Gains	152		27		964		—		354		1,497
Gross Unrealized Losses	150		—		1,016		201		—		1,367
Available-For-Sale Securities,   Pledged as Collateral											206,637
Maturities of Debt Securities,   at Amortized Cost:
Within One Year	$	—	$	9,068	$	3,649	$	1,500			$	14,217
From 1 - 5 Years	146,976		1,890		114,127		—				262,993
From 5 - 10 Years	—		397		35,082		—				35,479
Over 10 Years	—		520		—		1,000				1,520
Maturities of Debt Securities,   at Fair Value:
Within One Year	$	—	$	9,076	$	3,691	$	1,499			$	14,266
From 1 - 5 Years	146,978		1,910		114,202		—				263,090
From 5 - 10 Years	—		396		34,913		—				35,309
Over 10 Years	—		520		—		800				1,320
Securities in a Continuous   Loss Position, at Fair Value:
Less than 12 Months	$	89,563	$	—	$	85,091	$	500	$	—	$	175,154
12 Months or Longer	—		—		—		1,800		—		1,800
Total	$	89,563	$	—	$	85,091	$	2,300	$	—	$	176,954
Number of Securities in a   Continuous Loss Position	23		—		31		3		—		57
Unrealized Losses on   Securities in a Continuous   Loss Position:
Less than 12 Months	$	150	$	—	$	1,016	$	—	$	—	$	1,166
12 Months or Longer	—		—		—		201		—		201
Total	$	150	$	—	$	1,016	$	201	$	—	$	1,367
Disaggregated Details:
US Treasury Obligations,   at Amortized Cost	$	64,711
US Treasury Obligations, at Fair Value	64,730
US Agency Obligations, at Amortized Cost	82,265
US Agency Obligations, at Fair Value	82,248
US Government Agency   Securities, at Amortized Cost					$	503
US Government Agency   Securities, at Fair Value					505
Government Sponsored Entity   Securities, at Amortized Cost					152,355
Government Sponsored Entity Securities, at Fair Value					152,301

# 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
September 30, 2016
Available-For-Sale Securities,   at Amortized Cost	$	152,511	$	31,562	$	144,598	$	4,500	$	1,120	$	334,291
Available-For-Sale Securities,   at Fair Value	153,926		31,628		148,087		4,299		1,250		339,190
Gross Unrealized Gains	1,415		69		3,489		—		130		5,103
Gross Unrealized Losses	—		3		—		201		—		204
Available-For-Sale Securities,   Pledged as Collateral											277,832
Securities in a Continuous   Loss Position, at Fair Value:
Less than 12 Months	$	—	$	9,237	$	—	$	1,022	$	—	$	10,259
12 Months or Longer	—		—		—		1,800		—		1,800
Total	$	—	$	9,237	$	—	$	2,822	$	—	$	12,059
Number of Securities in a   Continuous Loss Position	—		1		2		3		—		6
Unrealized Losses on Securities   in a Continuous Loss Position:
Less than 12 Months	$	—	$	3	$	—	$	1	$	—	$	4
12 Months or Longer	—		—		—		200		—		200
Total	$	—	$	3	$	—	$	201	$	—	$	204
Disaggregated Details:
US Agency Obligations, at Amortized Cost	$	152,511
US Agency Obligations, at Fair Value	153,926
US Government Agency   Securities, at Amortized Cost					$	10,849
US Government Agency   Securities, at Fair Value					11,003
Government Sponsored Entity   Securities, at Amortized Cost					133,749
Government Sponsored Entity Securities, at Fair Value					137,084

# 12

The following table is the schedule of Held-To-Maturity Securities at September 30, 2017, December 31, 2016 and September 30, 2016:

Held-To-Maturity Securities
	State and Municipal Obligations		Mortgage- Backed Securities - Residential		Corporate and Other Debt Securities		Total Held-To Maturity Securities
September 30, 2017
Held-To-Maturity Securities,   at Amortized Cost	$	277,738	$	63,788	$	—	$	341,526
Held-To-Maturity Securities,   at Fair Value	279,384		64,515		—		343,899
Gross Unrealized Gains	2,977		738		—		3,715
Gross Unrealized Losses	1,331		11		—		1,342
Held-To-Maturity Securities,   Pledged as Collateral							325,096
Maturities of Debt Securities,   at Amortized Cost:
Within One Year	$	39,609	$	—	$	—	$	39,609
From 1 - 5 Years	79,412		54,504		—		133,916
From 5 - 10 Years	154,981		9,284		—		164,265
Over 10 Years	3,736		—		—		3,736
Maturities of Debt Securities,   at Fair Value:
Within One Year	$	39,782	$	—	$	—	$	39,782
From 1 - 5 Years	80,944		55,120		—		136,064
From 5 - 10 Years	154,892		9,395		—		164,287
Over 10 Years	3,766		—		—		3,766
Securities in a Continuous   Loss Position, at Fair Value:
Less than 12 Months	$	78,238	$	3,544	$	—	$	81,782
12 Months or Longer	13,331		—		—		13,331
Total	$	91,569	$	3,544	$	—	$	95,113
Number of Securities in a   Continuous Loss Position	252		7		—		259
Unrealized Losses on Securities    in a Continuous Loss Position:
Less than 12 Months	$	1,034	$	11	$	—	$	1,045
12 Months or Longer	297		—		—		297
Total	$	1,331	$	11	$	—	$	1,342
Disaggregated Details:
US Government Agency   Securities, at Amortized Cost			$	2,792
US Government Agency   Securities, at Fair Value			2,799
Government Sponsored Entity   Securities, at Amortized Cost			60,996
Government Sponsored Entity Securities, at Fair Value			61,716

# 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
September 30, 2016
Held-To-Maturity Securities,   at Amortized Cost	$	257,255	$	79,983	$	1,000	$	338,238
Held-To-Maturity Securities,   at Fair Value	263,897		82,544		1,000		347,441
Gross Unrealized Gains	6,712		2,561		—		9,273
Gross Unrealized Losses	70		—		—		70
Held-To-Maturity Securities,   Pledged as Collateral							320.774
Securities in a Continuous   Loss Position, at Fair Value:
Less than 12 Months	$	11,891	$	—	$	—	$	11,891
12 Months or Longer	1,172		—		—		1,172
Total	$	13,063	$	—	$	—	$	13,063
Number of Securities in a   Continuous Loss Position	3		—		—		3
Unrealized Losses on   Securities in a Continuous   Loss Position:
Less than 12 Months	$	68	$	—	$	—	$	68
12 Months or Longer	2		—		—		2
Total	$	70	$	—	$	—	$	70

# 14

Held-To-Maturity Securities
	State and Municipal Obligations	Mortgage- Backed Securities - Residential		Corporate and Other Debt Securities	Total Held-To Maturity Securities
September 30, 2016
Disaggregated Details:
US Government Agency   Securities, at Amortized Cost		$	3,497
US Government Agency   Securities, at Fair Value		3,622
Government Sponsored Entity   Securities, at Amortized Cost		76,486
Government Sponsored Entity Securities, at Fair Value		78,922

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 September 30, 2017, December 31, 2016 and September 30, 2016, do not reflect any deterioration of the credit worthiness of the issuing entities.  U.S. Government and 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 September 30, 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 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 September 30, 2017, December 31, 2016 and September 30, 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 $1,323, $483 and $1,414 as of September 30, 2017, December 31, 2016 and September 30, 2016, respectively, are included in the residential real estate balances for current loans.

			Commercial
	Commercial		Real Estate		Consumer		Residential		Total
September 30, 2017
Loans Past Due 30-59 Days	$	122	$	442	$	4,781	$	1,675	$	7,020
Loans Past Due 60-89 Days	—		—		914		77		991
Loans Past Due 90 or more Days	102		807		291		1,742		2,942
Total Loans Past Due	224		1,249		5,986		3,494		10,953
Current Loans	125,136		439,467		586,043		747,200		1,897,846
Total Loans	$	125,360	$	440,716	$	592,029	$	750,694	$	1,908,799
Loans 90 or More Days Past Due   and Still Accruing Interest	$	—	$	—	$	41	$	926	$	967
Nonaccrual Loans	609		1,249		507		3,117		5,482
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		1,741,369
Total Loans	$	105,155	$	431,646	$	537,361	$	679,106	$	1,753,268
Loans 90 or More Days Past Due   and Still Accruing Interest	$	—	$	—	$	158	$	1,043	$	1,201
Nonaccrual Loans	$	155	$	875	$	589	$	2,574	4,193
September 30, 2016
Loans Past Due 30-59 Days	$	38	$	—	$	3,793	$	271	$	4,102
Loans Past Due 60-89 Days	67		—		1,412		1,450		2,929
Loans Past Due 90 or more Days	160		1,106		343		1,467		3,076
Total Loans Past Due	265		1,106		5,548		3,188		10,107
Current Loans	102,789		427,905		518,155		648,260		1,697,109
Total Loans	$	103,054	$	429,011	$	523,703	$	651,448	$	1,707,216
Loans 90 or More Days Past Due   and Still Accruing Interest	$	—	$	—	$	—	$	548	$	548
Nonaccrual Loans	$	160	$	3,689	$	532	$	1,726	6,107

The Company disaggregates its loan portfolio into the following four categories:

Commercial - The Company offers a variety of loan options to meet the specific needs of commercial customers including term loans, time notes and lines of credit. Such loans are made available to businesses for working capital needs such as inventory and receivables, business expansion and equipment purchases. Generally, a collateral lien is placed on equipment or other assets owned by the borrower. These loans carry a higher risk than commercial real estate loans due to the nature of the underlying collateral, which can be business assets such as equipment and accounts receivable and generally have a lower liquidation value than real estate. In the event of default by the borrower, the Company may be required to liquidate collateral at deeply discounted values. To reduce the risk, management usually obtains personal guarantees of the borrowers.

# 16

Commercial Real Estate - The Company offers commercial real estate loans to finance real estate purchases, refinancings, expansions and improvements to commercial properties. Commercial real estate loans are made to finance the purchases of real property which generally consists of real estate with completed structures. These commercial real estate loans are secured by first liens on the real estate, which may include apartments, commercial structures, housing businesses, healthcare facilities, and both owner- and non owner-occupied facilities. These loans are typically less risky than commercial loans, since they are secured by real estate and buildings, and are generally originated in amounts of no more than 80% of the appraised value of the property. However, the Company also offers commercial construction and land development loans to finance projects, primarily within the communities that we serve. Many projects will ultimately be used by the borrowers' businesses, while others are developed for resale. These real estate loans are also secured by first liens on the real estate, which may include apartments, commercial structures, housing business, healthcare facilities and both owner-occupied and non-owner-occupied facilities. There is enhanced risk during the construction period, since the loan is secured by an incomplete project.

Consumer Loans - The Company offers a variety of consumer installment loans to finance personal expenditures. Most of these loans carry a fixed rate of interest with principal repayment terms typically ranging from one to five years, based upon the nature of the collateral and the size of the loan. In addition to installment loans, the Company also offers personal lines of credit and overdraft protection. Several loans are unsecured, which carry a higher risk of loss. Also included in this category are automobile loans. The Company primarily finances the purchases of automobiles indirectly through dealer relationships located throughout upstate New York and Vermont. Most of these loans carry a fixed rate of interest with principal repayment terms typically ranging from three to seven years. Indirect consumer loans are underwritten on a secured basis using the underlying collateral being financed.

Residential Real Estate Mortgages - Residential real estate loans consist primarily of loans secured by first or second mortgages on primary residences. We originate adjustable-rate and fixed-rate one-to-four-family residential real estate loans for the construction, purchase or refinancing of an existing mortgage. These loans are collateralized primarily by owner-occupied properties generally located in the Company’s market area. Loans on one-to-four-family residential real estate are generally originated in amounts of no more than 85% of the purchase price or appraised value (whichever is lower), or have private mortgage insurance. The Company’s underwriting analysis for residential mortgage loans typically includes credit verification, independent appraisals, and a review of the borrower’s financial condition. Mortgage title insurance and hazard insurance are normally required. It is the Company's general practice to underwrite residential real estate loans to secondary market standards. Construction loans have a unique risk, because they are secured by an incomplete dwelling. This risk is reduced through periodic site inspections, including one at each loan draw period. In addition, the Company offers fixed home equity loans as well as home equity lines of credit to consumers to finance home improvements, debt consolidation, education and other uses.  Company policy allows for a maximum loan to value ratio of 80%, although periodically higher advances are allowed.  The Company originates home equity lines of credit and second mortgage loans (loans secured by a second junior lien position on one-to-four-family residential real estate).  Risk is generally reduced through underwriting criteria, which include credit verification, appraisals, a review of the borrower's financial condition, and personal cash flows.  A security interest, with title insurance when necessary, is taken in the underlying real estate.

Allowance for Loan Losses

The following table presents a roll-forward of the allowance for loan losses and other information pertaining to the allowance for loan losses:

Allowance for Loan Losses
				Commercial
	Commercial			Real Estate			Consumer			Residential			Unallocated			Total
Roll-forward of the Allowance for Loan Losses for the Quarterly Periods:
June 30, 2017	$	925		$	4,983		$	7,305		$	4,229		$	—		$	17,442
Charge-offs	—			(342		)	(280		)	—			—			(622		)
Recoveries	1			—			74			—			—			75
Provision	(46		)	446			509			(109		)	—			800
September 30, 2017	$	880		$	5,087		$	7,608		$	4,120		$	—		$	17,695
June 30, 2016	$	1,128		$	5,816		$	5,742		$	4,026		$	86		$	16,798
Charge-offs	(34		)	—			(243		)	(90		)	—			(367		)
Recoveries	5			—			59			—			—			64
Provision	(76		)	(75		)	513			166			(48		)	480
September 30, 2016	$	1,023		$	5,741		$	6,071		$	4,102		$	38		$	16,975

# 17

Allowance for Loan Losses
				Commercial
	Commercial			Real Estate			Consumer			Residential			Unallocated			Total
Roll-forward of the Allowance for Loan Losses for the Year-to-Date Periods:
December 31, 2016	$	1,017		$	5,677		$	6,120		$	4,198		$	—		$	17,012
Charge-offs	(2		)	(342		)	(847		)	(6		)	—			(1,197		)
Recoveries	8			—			292			—			—			300
Provision	(143		)	(248		)	2,043			(72		)	—			1,580
September 30, 2017	$	880		$	5,087		$	7,608		$	4,120		$	—		$	17,695
December 31, 2015	$	1,827		$	4,520		$	5,554		$	3,790		$	347		$	16,038
Charge-offs	(86		)	—			(591		)	(107		)	—			(784		)
Recoveries	20			—			150			1			—			171
Provision	(738		)	1,221			958			418			(309		)	1,550
September 30, 2016	$	1,023		$	5,741		$	6,071		$	4,102		$	38		$	16,975
September 30, 2017
Allowance for loan losses - Loans Individually Evaluated for Impairment	$	104		$	—		$	—		$	34		$	—		$	138
Allowance for loan losses - Loans Collectively Evaluated for Impairment	776			5,087			7,608			4,086			—			17,557
Ending Loan Balance - Individually Evaluated for Impairment	489			1,543			104			1,139			—			3,275
Ending Loan Balance - Collectively Evaluated for Impairment	$	124,871		$	439,172		$	591,925		$	749,556		$	—		$	1,905,524
December 31, 2016
Allowance for loan losses - Loans Individually Evaluated for Impairment	$	—		$	—		$	—		$	—		$	—		$	—
Allowance for loan losses - Loans Collectively Evaluated for Impairment	1,017			5,677			6,120			4,198			—			17,012
Ending Loan Balance - Individually Evaluated for Impairment	—			890			91			1,098			—			2,079
Ending Loan Balance - Collectively Evaluated for Impairment	$	105,155		$	430,756		$	537,270		$	678,008		$	—		$	1,751,189
September 30, 2016
Allowance for loan losses - Loans Individually Evaluated for Impairment	$	—		$	240		$	—		$	—		$	—		$	240
Allowance for loan losses - Loans Collectively Evaluated for Impairment	1,023			5,501			6,071			4,102			38			16,735
Ending Loan Balance - Individually Evaluated for Impairment	—			3,538			90			317			—			3,945
Ending Loan Balance - Collectively Evaluated for Impairment	$	103,054		$	425,473		$	523,613		$	651,131		$	—		$	1,703,271

# 18

Through the provision for loan losses, an allowance for loan losses is maintained that reflects the best estimate of the inherent risk of loss in the Company’s loan portfolio as of the balance sheet date. Additions are made to the allowance for loan losses through a periodic provision for loan losses. Actual loan losses are charged against the allowance for loan losses when loans are deemed uncollectible and recoveries of amounts previously charged off are recorded as credits to the allowance for loan losses.

Loan officers and risk managers meet at least quarterly to discuss and review the conditions and risks associated with certain criticized and classified commercial-related relationships. In addition, the independent internal loan review department performs periodic reviews of the risk ratings on individual loans in the commercial loan portfolio.

We use a two-step process to determine the provision for loan losses and the amount of the allowance for loan losses. We measure impairment of impaired loans on a quarterly basis. Impaired loans are generally nonaccrual loans over $250 thousand and all troubled debt restructured loans. Impaired loans are generally considered to be collateral dependent with the specific reserve, if any, determined based on the value of the collateral less estimated costs to sell.

The remainder of the portfolio is evaluated on a pooled basis. For each homogeneous loan pool, we estimate a total loss factor based on the historical net loss rates adjusted for applicable qualitative factors. We update the total loss factors assigned to each loan category on a quarterly basis. For the commercial and commercial real estate categories, we further segregate the loan categories by credit risk profile (pools of loans graded satisfactory, special mention and substandard). Additional description of the credit risk classifications is detailed in the Credit Quality Indicators section of this note.

We determine the annualized historical net loss rate for each loan category using a trailing three-year net charge-off average. We then apply a loss emergence period factor to the historical net loss rate to account for the time it takes to identify the loss after a loss-causing event. While historical net loss experience provides a reasonable starting point for analysis, historical net losses, or even recent trends in net losses, do not by themselves form a sufficient basis to determine the appropriate level of the allowance for loan losses. Therefore, we also consider and adjust historical net loss factors for qualitative factors that impact the inherent risk of loss associated with the loan categories within the total loan portfolio. These include:

• Changes in the volume and severity of past due, nonaccrual and adversely classified loans

• Changes in the nature and volume of the portfolio and in the terms of loans

• Changes in the value of the underlying collateral for collateral dependent loans

• Changes in lending policies and procedures, including changes in underwriting standards and collection, charge-off, and recovery practices not considered elsewhere in estimating credit losses

• Changes in the quality of the loan review system

• Changes in the experience, ability, and depth of lending management and other relevant staff

• Changes in international, national, regional, and local economic and business conditions and developments that affect the collectibility of the portfolio

• The existence and effect of any concentrations of credit, and changes in the level of such concentrations

• The effect of other external factors such as competition and legal and regulatory requirements on the level of estimated credit losses in the  existing portfolio or pool

While not a significant part of the allowance for loan losses methodology, in 2016, we maintained an unallocated portion of the total allowance for loan losses related to the overall level of imprecision inherent in the estimation of the appropriate level of allowance for loan losses.

# 19

Credit Quality Indicators

The following table presents the credit quality indicators by loan category at September 30, 2017, December 31, 2016 and September 30, 2016:

Loan Credit Quality Indicators
			Commercial
	Commercial		Real Estate		Consumer		Residential		Total
September 30, 2017
Credit Risk Profile by Creditworthiness Category:
Satisfactory	$	120,622	$	411,685	$	—	$	—	$	532,307
Special Mention	1,394		1,401		—		—		2,795
Substandard	3,344		26,822		—		—		30,166
Doubtful	—		807		—		—		807
Credit Risk Profile Based on Payment Activity:
Performing	$	—	$	—	$	591,499	$	746,652	$	1,338,151
Nonperforming	—		—		530		4,043		4,573
December 31, 2016
Credit Risk Profile by Creditworthiness Category:
Satisfactory	$	95,722	$	396,907	$	—	$	—	$	492,629
Special Mention	1,359		7,008		—		—		8,367
Substandard	8,074		27,731		—		—		35,805
Doubtful	—		—		—		—		—
Credit Risk Profile Based on Payment Activity:
Performing	$	—	$	—	$	536,614	$	675,489	$	1,212,103
Nonperforming	—		—		747		3,617		4,364
September 30, 2016
Credit Risk Profile by Creditworthiness Category:
Satisfactory	$	93,903	$	392,697	$	—	$	—	$	486,600
Special Mention	1,274		10,472		—		—		11,746
Substandard	7,877		25,842		—		—		33,719
Doubtful	—		—		—		—		—
Credit Risk Profile Based on Payment Activity:
Performing	$	—	$	—	$	523,171	$	649,093	$	1,172,264
Nonperforming	—		—		532		2,355		2,887

We use an internally developed system of five credit quality indicators to rate the credit worthiness of each commercial loan defined as follows: 1) Satisfactory - "Satisfactory" borrowers have acceptable financial condition with satisfactory record of earnings and sufficient historical and projected cash flow to service the debt.  Borrowers have satisfactory repayment histories and primary and secondary sources of repayment can be clearly identified; 2) Special Mention - Loans in this category have potential weaknesses that deserve management’s close attention.  If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the institution’s credit position at some future date.  "Special mention" assets are not adversely classified and do not expose an institution to sufficient risk to warrant adverse classification.  Loans which might be assigned this risk rating include loans to borrowers with deteriorating financial strength and/or earnings record and loans with potential for problems due to weakening economic or market conditions; 3) Substandard - Loans classified as “substandard” are inadequately protected by the current sound net worth or paying capacity of the borrower or the collateral pledged, if any.  Loans in this category have well defined weaknesses that jeopardize the repayment.  They are characterized by the distinct possibility that the bank will sustain some loss if the deficiencies are not corrected.  “Substandard” loans may include loans which are likely to require liquidation of collateral to effect repayment, and other loans where character or ability to repay has become suspect. Loss potential, while existing in the aggregate amount of substandard assets, does not have to exist in individual assets classified substandard; 4) Doubtful - Loans classified as “doubtful” have all of the weaknesses inherent in those classified as “substandard” with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of current existing facts, conditions, and values highly questionable and improbable.  Although possibility of loss is extremely high, classification of these loans as “loss” has been deferred due to specific pending factors or events which may strengthen the value (i.e. possibility of additional collateral, injection of capital, collateral liquidation, debt restructure, economic recovery, etc).  Loans classified as “doubtful” need to be placed on

# 20

non-accrual; and 5) Loss - Loans classified as “loss” are considered uncollectible and of such little value that their continuance as a bankable asset is not warranted.  As of the date of the balance sheet, all loans in this category have been charged-off to the allowance for loan losses.  Large commercial loans are evaluated on an annual basis, unless the credit quality indicator falls to a level of "special mention" or below, when the loan is evaluated quarterly.  The credit quality indicator is one of the factors used to determine any loss, as further described in this footnote.

For the purposes of the table above, nonperforming consumer and residential loans are those loans on nonaccrual status or are 90 days or more past due and still accruing interest.

Impaired Loans

The following table presents information on impaired loans based on whether the impaired loan has a recorded related allowance or has no recorded related allowance:

Impaired Loans
			Commercial
	Commercial		Real Estate		Consumer		Residential		Total
September 30, 2017
Recorded Investment:
With No Related Allowance	$	—	$	818	$	104	$	851	$	1,773
With a Related Allowance	489		725		—		288		1,502
Unpaid Principal Balance:
With No Related Allowance	—		818		90		850		1,758
With a Related Allowance	489		723		—		288		1,500
December 31, 2016
Recorded Investment:
With No Related Allowance	$	—	$	890	$	91	$	1,098	$	2,079
With a Related Allowance	—		—		—		—		—
Unpaid Principal Balance:
With No Related Allowance	—		890		91		1,098		2,079
With a Related Allowance	—		—		—		—		—
September 30, 2016
Recorded Investment:
With No Related Allowance	$	—	$	898	$	90	$	317	$	1,305
With a Related Allowance	—		2,640		—		—		2,640
Unpaid Principal Balance:
With No Related Allowance	—		898		90		317		$	1,305
With a Related Allowance	—		2,640		—		—		2,640
For the Quarter Ended:
September 30, 2017
Average Recorded Balance:
With No Related Allowance	$	—	$	998	$	96	$	827	$	1,921
With a Related Allowance	496		363		—		288		1,147
Interest Income Recognized:
With No Related Allowance	—		—		1		—		1
With a Related Allowance	—		—		—		—		—
Cash Basis Income:
With No Related Allowance	—		—		—		—		—
With a Related Allowance	—		—		—		—		—
September 30, 2016
Average Recorded Balance:
With No Related Allowance	$	—	$	1,374	$	92	$	479	$	1,945
With a Related Allowance	—		2,166		—		—		2,166
Interest Income Recognized:
With No Related Allowance	—		3		2		—		5
With a Related Allowance	—		—		—		—		—
Cash Basis Income:
With No Related Allowance	—		—		—		—		—
With a Related Allowance	—		—		—		—		—

# 21

Impaired Loans
			Commercial
	Commercial		Real Estate		Consumer		Residential		Total
For the Year-To-Date Period Ended:
September 30, 2017
Average Recorded Balance:
With No Related Allowance	$	—	$	854	$	98	$	975	$	1,927
With a Related Allowance	245		363		—		144		752
Interest Income Recognized:
With No Related Allowance	—		—		3		—		3
With a Related Allowance	—		—		—		4		4
Cash Basis Income:
With No Related Allowance	—		—		—		—		—
With a Related Allowance	—		—		—		—		—
September 30, 2016
Average Recorded Balance:
With No Related Allowance	$	78	$	1,635	$	102	$	481	$	2,296
With a Related Allowance	—		1,320		—		—		1,320
Interest Income Recognized:
With No Related Allowance	—		14		4		—		18
With a Related Allowance	—		—		—		—		—
Cash Basis Income:
With No Related Allowance	—		—		—		—		—
With a Related Allowance	—		—		—		—		—

At September 30, 2017, December 31, 2016 and September 30, 2016, all impaired loans were considered to be collateral dependent and were therefore evaluated for impairment based on the fair value of collateral less estimated cost to sell. Interest income recognized in the table above, represents income earned after the loans became impaired and includes restructured loans in compliance with their modified terms and nonaccrual loans where we have recognized interest income on a cash basis.

# 22

Loans Modified in Trouble Debt Restructurings

The following table presents information on loans modified in trouble debt restructurings during the periods indicated. All loans were modified under Arrow's own programs. The principal modification, for all the modifications in the table below, involved payment deferrals.

Loans Modified in Trouble Debt Restructurings During the Period
			Commercial
	Commercial		Real Estate		Consumer		Residential		Total
For the Quarter Ended:
September 30, 2017
Number of Loans	1		—		2		—		3
Pre-Modification Outstanding Recorded Investment	$	725	$	—	$	25	$	—	$	750
Post-Modification Outstanding Recorded Investment	725		—		25		—		750
Subsequent Default, Number of Contracts	—		—		—		—		—
Subsequent Default, Recorded Investment	—		—		—		—		—
September 30, 2016
Number of Loans	—		—		1		—		1
Pre-Modification Outstanding Recorded Investment	$	—	$	—	$	15	$	—	$	15
Post-Modification Outstanding Recorded Investment	—		—		15		—		15
Subsequent Default, Number of Contracts	—		—		—		—		—
Subsequent Default, Recorded Investment	—		—		—		—		—
For the Year-To-Date Period Ended:
September 30, 2017
Number of Loans	2		—		6		—		8
Pre-Modification Outstanding Recorded Investment	$	1,228	$	—	$	51	$	—	$	1,279
Post-Modification Outstanding Recorded Investment	1,228		—		51		—		1,279
Subsequent Default, Number of Contracts	—		—		—		—		—
Subsequent Default, Recorded Investment	—		—		—		—		—
September 30, 2016
Number of Loans	—		—		2		—		2
Pre-Modification Outstanding Recorded Investment	$	—	$	—	$	23	$	—	$	23
Post-Modification Outstanding Recorded Investment	—		—		23		—		23
Subsequent Default, Number of Contracts	—		—		—		—		—
Subsequent Default, Recorded Investment	—		—		—		—		—

In general, loans requiring modification are restructured to accommodate the projected cashflows of the borrower. No loans modified during the preceding twelve months subsequently defaulted as of September 30, 2017. In addition, no commitments have been made to extend credit to borrowers whose loans have been modified in a troubled debt restructuring.

# 23

Note 4.    GUARANTEES (In Thousands)

The following table presents the balance for commitments to extend credit and standby letters of credit for the periods ended September 30, 2017, December 31, 2016 and September 30, 2016:

Commitments to Extend Credit and Letters of Credit
	September 30, 2017		December 31, 2016		September 30, 2016
Notional Amount:
Commitments to Extend Credit	$	316,449	$	296,442	$	300,439
Standby Letters of Credit	3,672		3,445		3,483
Fair Value:
Commitments to Extend Credit	$	—	$	—	$	—
Standby Letters of Credit	18		30		31

Arrow is party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers.  These financial instruments include commitments to extend credit and standby letters of credit.  Commitments to extend credit include home equity lines of credit, commitments for residential and commercial construction loans and other personal and commercial lines of credit.  These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets.  The contract or notional amounts of those instruments reflect the extent of the involvement Arrow has in particular classes of financial instruments.

Arrow's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual notional amount of those instruments.  Arrow uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments.

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract.  Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee.  Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.  Arrow evaluates each customer's creditworthiness on a case-by-case basis.  Home equity lines of credit are secured by residential real estate.  Construction commitments are secured by underlying real estate.  For other lines of credit, the amount of collateral obtained, if deemed necessary by Arrow upon extension of credit, is based on management's credit evaluation of the counterparty.  Collateral held varies, but may include accounts receivable, inventory, property, plant and equipment, and income-producing commercial properties.  Most of the commitments are variable rate instruments.

Arrow has issued conditional commitments in the form of standby letters of credit to guarantee payment on behalf of a customer and guarantee the performance of a customer to a third party.  Standby letters of credit generally arise in connection with lending relationships. The credit risk involved in issuing these instruments is essentially the same as that involved in extending loans to customers. Contingent obligations under standby letters of credit at September 30, 2017, December 31, 2016 and September 30, 2016 represent the maximum potential future payments Arrow could be required to make.  Typically, these instruments have terms of 12 months or less and expire unused; therefore, the total amounts do not necessarily represent future cash requirements.  Each customer is evaluated individually for creditworthiness under the same underwriting standards used for commitments to extend credit and on-balance sheet instruments. Company policies governing loan collateral apply to standby letters of credit at the time of credit extension.  Loan-to-value ratios generally range from 50% for movable assets, such as inventory, to 100% for liquid assets, such as bank CD's.  Fees for standby letters of credit typically range from 1% to 3% of the notional amount.  Fees are collected upfront and are amortized over the life of the commitment. The fair values of Arrow's standby letters of credit at September 30, 2017, December 31, 2016 and September 30, 2016, in the table above, were the same as the carrying amounts.  The fair value of standby letters of credit is based on the fees currently charged for similar agreements or the cost to terminate the arrangement with the counterparties.

The fair value of commitments to extend credit is determined by estimating the fees to enter into similar agreements, taking into account the remaining terms and present creditworthiness of the counterparties, and for fixed rate loan commitments, the difference between the current and committed interest rates.  Arrow provides several types of commercial lines of credit and standby letters of credit to its commercial customers.  The pricing of these services is not isolated, as Arrow considers the customer's complete deposit and borrowing relationship in pricing individual products and services.  The commitments to extend credit also include commitments under home equity lines of credit, for which Arrow charges no fee.  The carrying value and fair value of commitments to extend credit are not material and Arrow does not expect to incur any material loss as a result of these commitments.

# 24

Note 5.    COMPREHENSIVE INCOME (In Thousands)

The following table presents the components of other comprehensive income for the three-month period ended September 30, 2017 and 2016:

Schedule of Comprehensive Income
	Three Months Ended September 30,									Nine Months Ended September 30,
				Tax									Tax
	Before-Tax			(Expense)			Net-of-Tax			Before-Tax			(Expense)			Net-of-Tax
	Amount			Benefit			Amount			Amount			Benefit			Amount
2017
Net Unrealized Securities Holding (Losses) Gains Arising During the Period	6			$	3		9			749			$	(284	)	465
Reclassification Adjustment for Securities Gains Included in Net Income	(10		)	4			(6		)	(10		)	4			(6		)
Amortization of Net Retirement Plan Actuarial Loss	179			(115		)	64			537			(292		)	245
Accretion of Net Retirement Plan Prior Service Credit	(3		)	1			(2		)	(8		)	3			(5		)
Other Comprehensive Income (Loss)	$	172		$	(107	)	$	65		$	1,268		$	(569	)	$	699
2016
Net Unrealized Securities Holding Gains (Losses) Arising During the Period	(1,264		)	$	454		(810		)	3,868			$	(1,559	)	2,309
Reclassification Adjustment for Securities Gains Included in Net Income	—			—			—			(144		)	56			(88		)
Amortization of Net Retirement Plan Actuarial Loss	181			(70		)	111			503			(189		)	314
Accretion of Net Retirement Plan Prior Service Credit	(3		)	2			(1		)	(7		)	2			(5		)
Other Comprehensive Income (Loss)	$	(1,086	)	$	386		$	(700	)	$	4,220		$	(1,690	)	$	2,530

# 25

The following table presents the changes in accumulated other comprehensive income by component:

Changes in Accumulated Other Comprehensive Income (Loss) by Component (1)
	Unrealized			Defined Benefit Plan Items
	Gains and
	Losses on						Net Prior
	Available-for-			Net Gain			Service
	Sale Securities			(Loss)			(Cost ) Credit			Total
For the Quarter-To-Date periods ended:
June 30, 2017	$	74		$	(5,556	)	$	(718	)	$	(6,200	)
Other comprehensive income or loss before reclassifications	9			—			—			9
Amounts reclassified from accumulated other comprehensive income	(6		)	64			(2		)	56
Net current-period other comprehensive income	3			64			(2		)	65
September 30, 2017	$	77		$	(5,492	)	$	(720	)	$	(6,135	)
June 30, 2016	$	3,660		$	(7,690	)	$	(712	)	$	(4,742	)
Other comprehensive income or loss before reclassifications	(810		)	—			—			(810		)
Amounts reclassified from accumulated other comprehensive income	—			111			(1		)	110
Net current-period other comprehensive income	(810		)	111			(1		)	(700		)
September 30, 2016	$	2,850		$	(7,579	)	$	(713	)	$	(5,442	)
For the Year-To-Date periods ended:
December 31, 2016	$	(382	)	$	(5,737	)	$	(715	)	$	(6,834	)
Other comprehensive income or loss before reclassifications	465			—			—			465
Amounts reclassified from accumulated other comprehensive income	(6		)	245			(5		)	234
Net current-period other comprehensive income	459			245			(5		)	699
September 30, 2017	$	77		$	(5,492	)	$	(720	)	$	(6,135	)
December 31, 2015	$	629		$	(7,893	)	$	(708	)	$	(7,972	)
Other comprehensive income or loss before reclassifications	2,309			—			—			2,309
Amounts reclassified from accumulated other comprehensive income	(88		)	314			(5		)	221
Net current-period other comprehensive income	2,221			314			(5		)	2,530
September 30, 2016	$	2,850		$	(7,579	)	$	(713	)	$	(5,442	)

(1) All amounts are net of tax. Amounts in parentheses indicate debits.

# 26

The following table presents the reclassifications out of accumulated other comprehensive income:

Reclassifications Out of Accumulated Other Comprehensive Income (1)
	Amounts Reclassified
Details about Accumulated Other	from Accumulated Other				Affected Line Item in the Statement
Comprehensive Income (Loss) Components	Comprehensive Income				Where Net Income Is Presented
For the Quarter-to-date periods ended:
September 30, 2017
Unrealized gains and losses on available-for-sale securities	$	10			Gain on Securities Transactions
	10				Total before Tax
	(4		)		Provision for Income Taxes
	$	6			Net of Tax
Amortization of defined benefit pension items:
Prior-service costs	$	3		(2)	Salaries and Employee Benefits
Actuarial gains/(losses)	(179		)	(2)	Salaries and Employee Benefits
	(176		)		Total before Tax
	114				Provision for Income Taxes
	$	(62	)		Net of Tax
Total reclassifications for the period	$	(56	)		Net of Tax
September 30, 2016
Unrealized gains and losses on available-for-sale securities	$	—			Gain on Securities Transactions
	—				Total before Tax
	—				Provision for Income Taxes
	$	—			Net of Tax
Amortization of defined benefit pension items:
Prior-service costs	$	3		(2)	Salaries and Employee Benefits
Actuarial gains/(losses)	(181		)	(2)	Salaries and Employee Benefits
	(178		)		Total before Tax
	68				Provision for Income Taxes
	$	(110	)		Net of Tax
Total reclassifications for the period	$	(110	)		Net of Tax
For the Year-to-date periods ended:
September 30, 2017
Unrealized gains and losses on available-for-sale securities	$	10			Gain on Securities Transactions
	10				Total before Tax
	(4		)		Provision for Income Taxes
	$	6			Net of Tax
Amortization of defined benefit pension items:
Prior-service costs	$	8		(2)	Salaries and Employee Benefits
Actuarial gains/(losses)	(537		)	(2)	Salaries and Employee Benefits
	(529		)		Total before Tax
	289				Provision for Income Taxes
	$	(240	)		Net of Tax
Total reclassifications for the period	$	(234	)		Net of Tax

# 27

Reclassifications Out of Accumulated Other Comprehensive Income (1)
	Amounts Reclassified
Details about Accumulated Other	from Accumulated Other				Affected Line Item in the Statement
Comprehensive Income (Loss) Components	Comprehensive Income				Where Net Income Is Presented
September 30, 2016
Unrealized gains and losses on available-for-sale securities	$	144			Gain on Securities Transactions
	144				Total before Tax
	(56		)		Provision for Income Taxes
	$	88			Net of Tax
Amortization of defined benefit pension items:
Prior-service costs	7			(2)	Salaries and Employee Benefits
Actuarial gains/(losses)	$	(503	)	(2)	Salaries and Employee Benefits
	(496		)		Total before Tax
	187				Provision for Income Taxes
	$	(309	)		Net of Tax
Total reclassifications for the period	$	(221	)		Net of Tax

(1) Amounts in parentheses indicate debits to profit/loss.

(2) These accumulated other comprehensive income components are included in the computation of net periodic pension cost.

# 28

Note 6.    STOCK BASED COMPENSATION PLANS

Under the 2013 Long-Term Incentive Plan, Arrow granted options in the first quarter of 2017 to purchase shares of common stock. The fair values of the options were estimated on the date of grant using the Black-Scholes option-pricing model. The fair value of grants is expensed over the four year vesting period.

The following table presents a roll-forward of stock option plans and grants issued during 2017:

Schedule of Share-based Compensation Arrangements
	Stock Option Plans
Roll-Forward of Shares Outstanding:
Outstanding at January 1, 2017	366,329
Granted	55,621
Exercised	(35,937		)
Forfeited	—
Outstanding at September 30, 2017	386,013
Exercisable at Period-End	242,706
Vested and Expected to Vest	143,307
Roll-Forward of Shares Outstanding - Weighted Average Exercise Price:
Outstanding at January 1, 2017	$	21.86
Granted	36.12
Exercised	20.46
Forfeited	—
Outstanding at September 30, 2017	24.05
Exercisable at Period-End	21.34
Vested and Expected to Vest	28.62
Grants Issued During 2017 - Weighted Average Information:
Fair Value	$	6.25
Fair Value Assumptions:
Dividend Yield	2.72		%
Expected Volatility	21.40		%
Risk Free Interest Rate	2.25		%
Expected Lives (in years)	6.88

The following table presents information on the amounts expensed for the periods ended September 30, 2017 and 2016:

Share-Based Compensation Expense
	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2017		2016		2017		2016
Share-Based Compensation Expense	$	90	$	71	$	262	$	215

Arrow also sponsors an Employee Stock Purchase Plan 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.

# 29

Note 7.    RETIREMENT PLANS (Dollars in Thousands)

The following tables provide the components of net periodic benefit costs for the three and nine-month periods ended September 30, 2017 and 2016.

				Select
	Employees'			Executive		Postretirement
	Pension			Retirement		Benefit
	Plan			Plan		Plans
Net Periodic Benefit Cost
For the Three Months Ended September 30, 2017:
Service Cost	$	350		$	10	$	37
Interest Cost	362			55		75
Expected Return on Plan Assets	(800		)	—		—
Amortization of Prior Service (Credit) Cost	(14		)	14		(3		)
Amortization of Net Loss	148			31		—
Net Periodic Benefit Cost	$	46		$	110	$	109
Plan Contributions During the Period	$	—		$	116	$	65
For the Three Months Ended September 30, 2016:
Service Cost	$	376		$	8	$	63
Interest Cost	420			56		83
Expected Return on Plan Assets	(828		)	—		—
Amortization of Prior Service (Credit) Cost	(14		)	14		(3		)
Amortization of Net Loss	140			28		—
Net Periodic Benefit Cost	$	94		$	106	$	143
Plan Contributions During the Period	$	—		$	131	$	47
Net Periodic Benefit Cost
For the Nine Months Ended September 30, 2017:
Service Cost	$	1,050		$	30	$	110
Interest Cost	1,085			164		224
Expected Return on Plan Assets	(2,399		)	—		—
Amortization of Prior Service Cost (Credit)	(43		)	43		(8		)
Amortization of Net Loss	443			94		—
Net Periodic Benefit Cost	$	136		$	331	$	326
Plan Contributions During the Period	$	—		$	345	$	295
Estimated Future Contributions in the Current Fiscal Year	$	—		$	115	$	98
For the Nine Months Ended September 30, 2016:
Service Cost	$	1,127		$	24	$	188
Interest Cost	1,262			163		178
Expected Return on Plan Assets	(2,483		)	—		—
Amortization of Prior Service (Credit) Cost	(42		)	43		(8		)
Amortization of Net Loss	419			84		—
Net Periodic Benefit Cost	$	283		$	314	$	358
Plan Contributions During the Period	$	—		$	350	$	197

We were not required to make a contribution to the qualified pension plan in 2017, and currently, we do not expect to make additional contributions in 2017. Arrow makes contributions to its other post-retirement benefit plans in an amount equal to benefit payments for the year.

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Note 8.    EARNINGS PER COMMON SHARE (In Thousands, Except Per Share Amounts)

The following table presents a reconciliation of the numerator and denominator used in the calculation of basic and diluted earnings per common share (“EPS”) for periods ended September 30, 2017 and 2016.  All share and per share amounts have been adjusted for the September 28, 20173% stock dividend.

Earnings Per Share
	Quarterly Period Ended:				Year-to-Date Period Ended:
	September 30, 2017		September 30, 2016		September 30, 2017		September 30, 2016
Earnings Per Share - Basic:
Net Income	$	7,416	$	6,738	$	21,255	$	19,934
Weighted Average Shares - Basic	13,889		13,810		13,889		13,775
Earnings Per Share - Basic	$	0.53	$	0.49	$	1.53	$	1.45
Earnings Per Share - Diluted:
Net Income	$	7,416	$	6,738	$	21,255	$	19,934
Weighted Average Shares - Basic	13,889		13,810		13,889		13,775
Dilutive Average Shares Attributable to Stock Options	77		91		92		67
Weighted Average Shares - Diluted	13,966		13,901		13,981		13,842
Earnings Per Share - Diluted	$	0.53	$	0.48	$	1.52	$	1.44

# 31

Note 9.    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 on a recurring basis. The only assets or liabilities that Arrow measured at fair value on a recurring basis at September 30, 2017, December 31, 2016 and September 30, 2016 were securities available-for-sale. Arrow held no securities or liabilities for trading on such dates.

The table below presents the financial instrument's fair value and the amounts within the fair value hierarchy based on the lowest level of input that is significant to the fair value measurement:

Fair Value of Assets and Liabilities Measured on a Recurring and Nonrecurring Basis
			Fair Value Measurements at Reporting Date Using:
	Fair Value		Quoted Prices In Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Gains (Losses)
Fair Value of Assets and Liabilities Measured on a Recurring Basis:
September 30, 2017
Securities Available-for Sale:
U.S. Government & Agency Obligations	$	146,978	$	64,730	$	82,248	$	—
State and Municipal Obligations	11,902		—		11,902		—
Mortgage-Backed Securities - Residential	152,806		—		152,806		—
Corporate and Other Debt Securities	2,299		—		2,299		—
Mutual Funds and Equity Securities	1,474		—		1,474		—
Total Securities Available-for-Sale	$	315,459	$	64,730	$	250,729	$	—
December 31, 2016
Securities Available-for Sale:
U.S. Government & Agency Obligations	$	147,377	$	54,706	$	92,671	$	—
State and Municipal Obligations	27,690		—		27,690		—
Mortgage-Backed Securities - Residential	167,239		—		167,239		—
Corporate and Other Debt Securities	3,308		—		3,308		—
Mutual Funds and Equity Securities	1,382		—		1,382		—
Total Securities Available-for Sale	$	346,996	$	54,706	$	292,290	$	—
September 30, 2016
Securities Available-for Sale:
U.S. Government & Agency Obligations	$	153,926	$	—	$	153,926	$	—
State and Municipal Obligations	31,628		—		31,628		—
Mortgage-Backed Securities - Residential	148,087		—		148,087		—
Corporate and Other Debt Securities	4,299		—		4,299		—
Mutual Funds and Equity Securities	1,250		—		1,250		—
Total Securities Available-for Sale	$	339,190	$	—	$	339,190	$	—
Fair Value of Assets and Liabilities Measured on a Nonrecurring Basis:
September 30, 2017
Collateral Dependent Impaired Loans	$	1,502	$	—	$	—	$	1,502	$	(138	)
Other Real Estate Owned and Repossessed Assets, Net	1,713		—		—		1,713		(655		)
December 31, 2016
Collateral Dependent Impaired Loans	$	—	$	—	$	—	$	—	$	—
Other Real Estate Owned and Repossessed Assets, Net	$	1,686	$	—	—		1,686		$	(587	)
September 30, 2016
Collateral Dependent Impaired Loans	$	2,640	$	—	$	—	$	2,640	$	(240	)
Other Real Estate Owned and Repossessed Assets, Net	1,016		—		—		1,016		(319		)

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We determine the fair value of financial instruments under the following hierarchy:

• Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

• Level 2 - Quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability; and

• Level 3 - Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).

There were no transfers between Levels 1, 2 and 3 for the three months ended September 30, 2017, December 31, 2016 and September 30, 2016.

Fair Value Methodology for Assets and Liabilities Measured on a Recurring Basis

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.  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 Value Methodology for Assets and Liabilities Measured on a Nonrecurring Basis

The Company uses the fair value of underlying collateral to estimate the specific reserves for collateral dependent impaired loans. The fair value of underlying collateral is generally determined through independent appraisals, which generally include various Level 3 inputs which are not identifiable. The appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses ranging from 15% to 25%. Based on the valuation techniques used, the fair value measurements for collateral dependent impaired loans are classified as Level 3. 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 September 30, 2017, December 31, 2016 and September 30, 2016.

Fair Value by Balance Sheet Grouping

The following table presents a summary of the carrying amount, the fair value or an amount approximating fair value and the fair value hierarchy of Arrow’s financial instruments:

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Schedule of Fair Values by Balance Sheet Grouping
					Fair Value Hierarchy
	Carrying Amount		Fair Value		Level 1		Level 2		Level 3
September 30, 2017
Cash and Cash Equivalents	$	80,666	$	80,666	$	80,666	$	—	$	—
Securities Available-for-Sale	315,459		315,459		64,730		250,729		—
Securities Held-to-Maturity	341,526		343,899		—		343,899		—
Federal Home Loan Bank and Federal   Reserve Bank Stock	6,704		6,704		—		6,704		—
Net Loans	1,891,104		1,870,379		—		—		1,870,379
Accrued Interest Receivable	7,692		7,692		—		7,692		—
Deposits	2,307,116		2,299,011		—		2,299,011		—
Federal Funds Purchased and Securities   Sold Under Agreements to Repurchase	61,419		61,419		—		61,419		—
Federal Home Loan Bank Overnight Advances	33,000		33,000		—		33,000		—
Federal Home Loan Bank Term Advances	55,000		55,110		—		55,110		—
Junior Subordinated Obligations Issued   to Unconsolidated Subsidiary Trusts	20,000		20,000		—		20,000		—
Accrued Interest Payable	260		260		—		260		—
December 31, 2016
Cash and Cash Equivalents	$	57,355	$	57,355	$	57,355	$	—	$	—
Securities Available-for-Sale	346,996		346,996		54,706		292,290		—
Securities Held-to-Maturity	345,427		343,751		—		343,751		—
Federal Home Loan Bank and Federal   Reserve Bank Stock	10,912		10,912		—		10,912		—
Net Loans	1,736,256		1,720,078		—		—		1,720,078
Accrued Interest Receivable	6,684		6,684		—		6,684		—
Deposits	2,116,546		2,109,557		—		2,109,557		—
Federal Funds Purchased and Securities   Sold Under Agreements to Repurchase	35,836		35,836		—		35,836		—
Federal Home Loan Bank Overnight Advances	123,000		123,000		—		123,000		—
Federal Home Loan Bank Term Advances	55,000		55,118		—		55,118		—
Junior Subordinated Obligations Issued   to Unconsolidated Subsidiary Trusts	20,000		20,000		—		20,000		—
Accrued Interest Payable	247		247		—		247		—
September 30, 2016
Cash and Cash Equivalents	$	102,059	$	102,059	$	102,059	$	—	$	—
Securities Available-for-Sale	339,190		339,190		—		339,190		—
Securities Held-to-Maturity	338,238		347,441		—		347,441		—
Federal Home Loan Bank and Federal   Reserve Bank Stock	5,371		5,371		—		5,371		—
Net Loans	1,690,241		1,696,929		—		—		1,696,929
Accrued Interest Receivable	7,046		7,046		—		7,046		—
Deposits	2,213,187		2,207,985		—		2,207,985		—
Federal Funds Purchased and Securities   Sold Under Agreements to Repurchase	38,589		38,589		—		38,589		—
Federal Home Loan Bank Overnight Advances	—		—		—		—		—
Federal Home Loan Bank Term Advances	55,000		55,955		—		55,955		—
Junior Subordinated Obligations Issued   to Unconsolidated Subsidiary Trusts	20,000		20,000		—		20,000		—
Accrued Interest Payable	247		247		—		247		—

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Fair Value Methodology for Financial Instruments Not Measured on a Recurring or Nonrecurring Basis

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 Federal Home Loan Bank of New York (FHLBNY) yield curve, which is considered representative of Arrow’s time deposit rates. The fair value of all other deposits is equal to the carrying value.

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.

# 35

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

Arrow Financial Corporation:

We have reviewed the consolidated balance sheets of Arrow Financial Corporation and subsidiaries (the Company) as of September 30, 2017 and 2016, the related consolidated statements of income, comprehensive income for the three-month and nine-month periods ended September 30, 2017 and 2016, and the related consolidated statements of changes in stockholders’ equity and cash flows for the nine-month periods ended September 30, 2017 and 2016. These consolidated financial statements are the responsibility of the Company’s management.

We conducted our reviews in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion

Based on our reviews, we are not aware of any material modifications that should be made to the consolidated financial statements referred to above for them to be in conformity with U.S. generally accepted accounting principles.

We have previously audited, in accordance with standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Arrow Financial Corporation and subsidiaries as of December 31, 2016, and the related consolidated statements of income, comprehensive income, changes in stockholders’ equity, and cash flows for the year then ended (not presented herein); and in our report dated March 14, 2017, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 2016, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

/s/ KPMG LLP

Albany, New York

November 7, 2017

# 36

ARROW FINANCIAL CORPORATION AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

September 30, 2017

Note on Terminology - In this Quarterly Report on Form 10-Q, the terms “Arrow,” “the registrant,” “the company,” “we,” “us,” and “our” generally refer to Arrow Financial Corporation and its subsidiaries as a group, except where the context indicates otherwise. At certain points in this Form 10-Q, our performance is compared with that of our “peer group” of financial institutions. Unless otherwise specifically stated, the peer group for the purposes of this Form 10-Q is comprised of the group of 338 domestic bank holding companies with $1 to $3 billion in total consolidated assets as identified in the Federal Reserve Board’s “Bank Holding Company Performance Report” for June 30, 2017 (the most recent such Report currently available), and peer group data contained herein has been derived from such Report.

The Company and Its Subsidiaries - Arrow is a two-bank holding company headquartered in Glens Falls, New York. Our banking subsidiaries are Glens Falls National Bank and Trust Company (Glens Falls National) whose main office is located in Glens Falls, New York, and Saratoga National Bank and Trust Company (Saratoga National) whose main office is located in Saratoga Springs, New York. Our non-bank subsidiaries include Capital Financial Group, Inc. (an insurance agency specializing in selling and servicing group health care policies); Upstate Agency, LLC (an insurance agency specializing in property and casualty insurance); North Country Investment Advisers, Inc. (a registered investment adviser that provides investment advice to our proprietary mutual funds); Glens Falls National Community Development Corporation (which invests in qualifying community development projects); and Arrow Properties, Inc. (a real estate investment trust, or REIT). Our holding company also owns directly two subsidiary business trusts, organized in 2003 and 2004 to issue trust preferred securities (TRUPs), which are still outstanding.

Forward Looking Statements - This Quarterly Report on Form 10-Q contains statements that are not historical in nature but rather are based on our beliefs, assumptions, expectations, estimates and projections about the future. These statements are “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and involve a degree of uncertainty and attendant risk. Words such as “expects,” “believes,” “anticipates,” “estimates” and variations of such words and similar expressions are intended to identify such forward-looking statements. Some of these statements, such as those included in the interest rate sensitivity analysis in Part I, Item 3, entitled “Quantitative and Qualitative Disclosures About Market Risk,” are merely presentations of what future performance or changes in future performance would look like based on hypothetical assumptions and on simulation models. Other forward-looking statements are based on our general perceptions of market conditions and trends in business activity, both our own and in the banking industry generally, as well as current management strategies for future operations and development.

Examples of Forward-Looking Statements:
Topic	Page	Location
Future compliance with regulatory capital standards	46	First paragraph under "Regulatory Capital and Increase in Stockholders' Equity"
VISA	47	"VISA Class B Common Stock"
Impact of market rate structure on net interest margin, loan yields and deposit rates	51	All paragraphs under "Quarterly Taxable Equivalent Yield on Loans"
Impact of market rate structure on net interest margin, loan yields and deposit rates	65	Last paragraph under "Quantitative and Qualitative Disclosures about Market Risk
Future level of residential real estate loans	50	Both paragraphs under "Residential Real Estate Loans"
Future level of indirect consumer loans	51	Last paragraph under "Consumer Loans"
Future level of commercial loans	51	Third paragraph under "Commercial Loans, and Commercial Real Estate Loans"
Impact of changes in mortgage rates	53	First paragraph under "Investment Sales, Purchases and Maturities"
Provision for loan losses	54	First paragraph in section
Future level of nonperforming assets	55	Last four paragraphs under "Risk Elements"
Liquidity	58	Last paragraph under "LIQUIDITY"
Fees for other services to customers	60, 63	Second paragraph under "Noninterest Income"

# 37

These forward-looking statements may not be exhaustive, are not guarantees of future performance and involve certain risks and uncertainties that are difficult to quantify or, in some cases, to identify.  You should not place undue reliance on any such forward-looking statements. In the case of all forward-looking statements, actual outcomes and results may differ materially from what the statements predict or forecast.  Factors that could cause or contribute to such differences include, but are not limited to:  

a. rapid and dramatic changes in economic and market conditions, such as the U.S. economy experienced during the financial crisis of 2008-2010;

b.sharp fluctuations in interest rates, economic activity, or consumer spending patterns;

c.sudden changes in the market for products we provide, such as real estate loans;

d. significant changes in banking, corporate income tax, or other laws and regulations, including both enactment of new legal or regulatory measures (e.g., the Dodd-Frank Act) or the modification or elimination of pre-existing measures;

e. significant changes in U.S. monetary or fiscal policy, including new or revised monetary programs or targets adopted or announced by the Federal Reserve ("monetary tightening or easing") or significant new federal legislation materially affecting the federal budget ("fiscal tightening or expansion");

f. enhanced competition from unforeseen sources (e.g., so-called Fintech enterprises); and

g. similar uncertainties inherent in banking operations or business generally, including technological developments and changes.

Readers are cautioned not to place undue reliance on forward-looking statements in this Report, which speak only as of the date hereof. We undertake no general obligation to revise or update the forward-looking statements contained in this Report to reflect the occurrence of unanticipated events at any point in the future. This Quarterly Report should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2016.

USE OF NON-GAAP FINANCIAL MEASURES

The Securities and Exchange Commission (SEC) has adopted Regulation G, which applies to all public disclosures, including earnings releases, made by registered companies that contain “non-GAAP financial measures.”  GAAP is generally accepted accounting principles in the United States of America.  Under Regulation G, companies making public disclosures containing non-GAAP financial measures must also disclose, along with each non-GAAP financial measure, certain additional information, including a reconciliation of the non-GAAP financial measure to the closest comparable GAAP financial measure and a statement of the Company’s reasons for utilizing the non-GAAP financial measure as part of its financial disclosures.  The SEC has exempted from the definition of “non-GAAP financial measures” certain commonly used financial measures that are not based on GAAP.  When these exempted measures are included in public disclosures, supplemental information is not required.  The following measures used in this Report, which are commonly utilized by financial institutions, have not been specifically exempted by the SEC and may constitute "non-GAAP financial measures" within the meaning of the SEC's new rules, although we are unable to state with certainty that the SEC would so regard them.

Tax-Equivalent Net Interest Income and Net Interest Margin: Net interest income, as a component of the tabular presentation by financial institutions of Selected Financial Information regarding their recently completed operations, as well as disclosures based on that tabular presentation, is commonly presented on a tax-equivalent basis.  That is, to the extent that some component of the institution's net interest income, which is presented on a before-tax basis, is exempt from taxation (e.g., is received by the institution as a result of its holdings of state or municipal obligations), an amount equal to the tax benefit derived from that component is added to the actual before-tax net interest income total.  This adjustment is considered helpful in comparing the financial institution's net interest income (before tax) to that of another institution or in analyzing the institution’s net interest income trend line over time, to correct any analytical distortion that might otherwise arise from the fact that financial institutions vary widely in the proportions of their portfolios that are invested in tax-exempt securities, or from the fact that even a single institution may significantly alter over time the proportion of its own portfolio that is invested in tax-exempt obligations.  Moreover, net interest income is itself a component of a second financial measure commonly used by financial institutions, net interest margin, which is the ratio of net interest income (before tax) to average earning assets.  For purposes of this measure as well, tax-equivalent net interest income is generally used by financial institutions, again to provide a better basis of comparison from institution to institution and/or to better demonstrate a single institution’s performance over time. We follow these practices.

The Efficiency Ratio: Financial institutions often use an "efficiency ratio" as a measure of expense control.  The efficiency ratio typically is defined as the ratio of noninterest expense to net interest income and noninterest income.  Net interest income as utilized in calculating the efficiency ratio is typically the same as the net interest income presented in Selected Financial Information table discussed in the preceding paragraph, i.e., it is expressed on a tax-equivalent basis.  Moreover, many financial institutions, in calculating the efficiency ratio, also adjust both noninterest expense and noninterest income to exclude from these items (as calculated under GAAP) certain recurring component elements of income and expense, such as intangible asset amortization (which is included in noninterest expense under GAAP but may be excluded therefrom for purposes of calculating the efficiency ratio) and securities gains or losses (which are reflected in the calculation of noninterest income under GAAP but may be excluded therefrom for purposes of calculating the efficiency ratio).  We make these adjustments.

Tangible Book Value per Share:  Tangible equity is total stockholders’ equity less intangible assets.  Tangible book value per share is tangible equity divided by total shares issued and outstanding.  Tangible book value per share is often regarded as a more meaningful comparative ratio than book value per share as calculated under GAAP, that is, total stockholders’ equity including intangible assets divided by total shares issued and outstanding.  Intangible assets includes many items, but in our case, essentially represents goodwill.

# 38

Adjustments for Certain Items of Income or Expense:  In addition to our regular utilization in our public filings and disclosures of the various non-GAAP measures commonly utilized by financial institutions discussed above, we also may elect from time to time, in connection with our presentation of various financial measures prepared in accordance with GAAP, such as net income, earnings per share (i.e. EPS), return on average assets (i.e. ROA), and return on average equity (i.e. ROE), to provide as well certain comparative disclosures that adjust these GAAP financial measures, typically by removing therefrom the impact of certain transactions or other material items of income or expense that are unusual or unlikely to be repeated.  We do so only if we believe that provision of the resulting non-GAAP financial measures may improve the average investor's understanding of our results of operations by separating out items that have a disproportional positive or negative impact on the particular period in question or by otherwise permitting a better comparison from period-to-period in our results of operations with respect to our fundamental lines of business, including the commercial banking business.

We believe that the non-GAAP financial measures disclosed by us from time-to-time are useful in evaluating our performance and that such information should be considered as supplemental in nature, and not as a substitute for or superior to, the related financial information prepared in accordance with GAAP.  Our non-GAAP financial measures may differ from similar measures presented by other companies.

# 39

Arrow Financial Corporation Selected Quarterly Information (Dollars In Thousands, Except Per Share Amounts- Unaudited)
Quarter Ended	9/30/2017			6/30/2017			3/31/2017			12/31/2016			9/30/2016
Net Income	$	7,416		$	7,208		$	6,631		$	6,600		$	6,738
Transactions Recorded in Net Income (Net of Tax):
Net Gain (Loss) on Securities Transactions	6			—			—			(101		)	—
Share and Per Share Data:(1)
Period End Shares Outstanding	13,891			13,900			13,886			13,887			13,828
Basic Average Shares Outstanding	13,889			13,890			13,889			13,844			13,810
Diluted Average Shares Outstanding	13,966			13,975			14,001			13,972			13,901
Basic Earnings Per Share	$	0.53		$	0.52		$	0.48		$	0.48		$	0.49
Diluted Earnings Per Share	0.53			0.52			0.47			0.47			0.48
Cash Dividend Per Share	0.243			0.243			0.243			0.243			0.236
Selected Quarterly Average Balances:
Interest-Bearing Deposits at Banks	27,143			24,480			23,565			34,731			21,635
Investment Securities	677,368			684,570			695,615			684,906			696,712
Loans	1,892,766			1,842,543			1,781,113			1,726,738			1,680,850
Deposits	2,193,778			2,206,365			2,161,798			2,160,156			2,063,832
Other Borrowed Funds	262,864			207,270			205,436			157,044			209,946
Stockholders’ Equity	243,801			239,396			235,257			230,198			228,048
Total Assets	2,725,653			2,677,843			2,626,470			2,572,425			2,528,124
Return on Average Assets, annualized	1.08		%	1.08		%	1.02		%	1.02		%	1.06		%
Return on Average Equity, annualized	12.07		%	12.08		%	11.43		%	11.41		%	11.75		%
Return on Tangible Equity, annualized (2)	13.40		%	13.45		%	12.76		%	12.77		%	13.18		%
Average Earning Assets	2,597,277			2,551,593			2,500,293			2,446,375			2,399,197
Average Paying Liabilities	2,012,802			2,005,421			1,977,628			1,933,974			1,892,583
Interest Income, Tax-Equivalent (3)	22,565			21,875			20,945			20,709			20,222
Interest Expense	1,949			1,699			1,536			1,404			1,405
Net Interest Income, Tax-Equivalent (3)	20,616			20,176			19,409			19,305			18,817
Tax-Equivalent Adjustment (3)	966			949			948			939			940
Net Interest Margin, annualized (3)	3.15		%	3.17		%	3.15		%	3.14		%	3.12		%
Efficiency Ratio Calculation: (4)
Noninterest Expense	$	15,548		$	15,637		$	15,475		$	15,272		$	15,082
Less: Intangible Asset Amortization	69			70			71			73			74
Net Noninterest Expense	15,479			15,567			15,404			15,199			15,008
Net Interest Income, Tax-Equivalent (3)	20,616			20,176			19,409			19,305			18,817
Noninterest Income	7,141			7,057			6,695			6,648			7,114
Less: Net Securities Gain (Loss)	10			—			—			(166		)	—
Net Gross Income	27,747			27,233			26,104			26,119			25,931
Efficiency Ratio (Non-GAAP)	55.79		%	57.16		%	59.01		%	58.19		%	57.88		%
Period-End Capital Information:
Total Stockholders’ Equity (i.e. Book Value)	$	244,648		$	240,752		$	236,111		$	232,852		$	229,208
Book Value per Share (1)	17.61			17.32			17.00			16.77			16.58
Goodwill and Other Intangible Assets, net	24,268			24,355			24,448			24,569			24,675
Tangible Book Value per Share (1,2)	15.86			15.57			15.24			15.00			14.79
Capital Ratios:(5)
Tier 1 Leverage Ratio	9.30		%	9.35		%	9.37		%	9.47%			9.44%
Common Equity Tier 1 Capital Ratio	12.70		%	12.68		%	12.84		%	12.97%			12.80%
Tier 1 Risk-Based Capital Ratio	13.79		%	13.79		%	13.99		%	14.14%			13.98%
Total Risk-Based Capital Ratio	14.77		%	14.77		%	14.98		%	15.15%			14.99%
Assets Under Trust Administration   and Investment Management	$	1,411,608		$	1,356,262		$	1,333,690		$	1,301,408		$	1,284,051

# 40

Arrow Financial Corporation

Selected Quarterly Information - Continued

(Dollars In Thousands, Except Per Share Amounts- Unaudited)

Footnotes:
1.	Share and Per Share Data have been restated for the September 28, 2017, 3% stock dividend.
2.	Tangible Book Value, Tangible Equity and Return on Tangible Equity exclude goodwill and other intangible assets, net from total equity.  These are non-GAAP financial measures which we believe provide investors with information that is useful in understanding our financial performance. See "Use of Non-GAAP Financial Measures" on page 38.
		9/30/2017			6/30/2017			3/31/2017			12/31/2016			9/30/2016
	Total Stockholders' Equity (GAAP)	$	244,648		$	240,752		$	236,111		$	232,852		$	229,208
	Less: Goodwill and Other Intangible assets, net	24,268			24,355			24,448			24,569			24,675
	Tangible Equity (Non-GAAP)	$	220,380		$	216,397		$	211,663		$	208,283		$	204,533
	Period End Shares Outstanding	13,891			13,900			13,886			13,887			13,828
	Tangible Book Value per Share      (Non-GAAP)	$	15.86		$	15.57		$	15.24		$	15.00		$	14.79
	Net Income	7,416			7,208			6,631			6,600			6,738
	Return on Tangible Equity (Net Income/Tangible Equity - Annualized)	13.40		%	13.45		%	12.76		%	12.77		%	13.18		%
3.	Net Interest Margin is the ratio of our annualized tax-equivalent net interest income to average earning assets. This is also a non-GAAP financial measure which we believe provides investors with information that is useful in understanding our financial performance. See "Use of Non-GAAP Financial Measures" on page 38.
		9/30/2017			6/30/2017			3/31/2017			12/31/2016			9/30/2016
	Interest Income (GAAP)	$	21,599		$	20,926		$	19,997		$	19,770		$	19,282
	Add: Tax-Equivalent adjustment      (Non-GAAP)	966			949			948			939			940
	Interest Income - Tax Equivalent      (Non-GAAP)	$	22,565		$	21,875		$	20,945		$	20,709		$	20,222
	Net Interest Income (GAAP)	$	19,650		$	19,227		$	18,461		$	18,366		$	17,877
	Add: Tax-Equivalent adjustment      (Non-GAAP)	966			949			948			939			940
	Net Interest Income - Tax Equivalent      (Non-GAAP)	$	20,616		$	20,176		$	19,409		$	19,305		$	18,817
	Average Earning Assets	$	2,597,277		$	2,551,593		$	2,500,293		$	2,446,375		$	2,399,197
	Net Interest Margin (Non-GAAP)*	3.15		%	3.17		%	3.15		%	3.14		%	3.12		%
4.	Financial Institutions often use the "efficiency ratio", a non-GAAP ratio, as a measure of expense control. We believe the efficiency ratio provides investors with information that is useful in understanding our financial performance. We define our efficiency ratio as the ratio of our noninterest expense to our net gross income (which equals our tax-equivalent net interest income plus noninterest income, as adjusted). There is no GAAP financial measure that is closely comparable to the efficiency ratio. See "Use of Non-GAAP Financial Measures" on page 38.
5.	For the recently-completed quarter, all of the regulatory capital ratios in the table on page 40 and the table in this Note 5, below, as well as the Total Risk-Weighted Assets and Common Equity Tier 1 Capital amounts listed in the table below, are estimates based on, and calculated in accordance with, bank regulatory capital rules. The Common Equity Tier 1 Capital Ratio (CET1 Ratio) of Arrow as of 9/30/2017 that is listed in the tables (i.e., 12.70%) not only exceeds the currently required minimum CET1 Ratio (including Conservation Buffer) of 5.750%, but also exceeds the minimum CET1 Ratio that will be required when the Conservation Buffer is fully phased-in, on January 1, 2019, of 7.00% (including the ultimate required Conservation Buffer of 2.50%).
		9/30/2017			6/30/2017			3/31/2017			12/31/2016			9/30/2016
	Total Risk Weighted Assets	$	1,830,730		$	1,802,455		$	1,747,318		$	1,707,829		$	1,690,646
	Common Equity Tier 1 Capital	232,473			228,586			224,369			221,472			216,382
	Common Equity Tier 1 Capital Ratio	12.70		%	12.68		%	12.84		%	12.97		%	12.80		%

     * Quarterly ratios have been annualized.

# 41

Arrow Financial Corporation Selected Year-to-Date Information (Dollars In Thousands, Except Per Share Amounts- Unaudited)
Nine Months Ended	9/30/2017			9/30/2016
Net Income	$	21,255		$	19,934
Transactions Recorded in Net Income (Net of Tax):
Net Gain on Securities Transactions	6			88
Share and Per Share Data:(1)
Period End Shares Outstanding	13,891			13,828
Basic Average Shares Outstanding	13,889			13,775
Diluted Average Shares Outstanding	13,981			13,842
Basic Earnings Per Share	$	1.53		$	1.45
Diluted Earnings Per Share	1.52			1.44
Cash Dividend Per Share	0.73			0.71
Selected Year-to-Date Average Balances:
Interest-Bearing Deposits at Banks	25,076			21,665
Investment Securities	685,784			704,890
Loans	1,839,216			1,641,899
Deposits	2,187,431			2,072,052
Other Borrowed Funds	225,400			173,159
Stockholders’ Equity	239,516			223,214
Total Assets	2,677,018			2,493,909
Return on Average Assets, annualized	1.06		%	1.07		%
Return on Average Equity, annualized	11.86		%	11.93		%
Return on Tangible Equity, annualized (Non-GAAP) (2)	13.21		%	13.42		%
Average Earning Assets	2,550,076			2,368,454
Average Paying Liabilities	1,998,746			1,883,717
Interest Income, Tax-Equivalent (Non-GAAP) (3)	65,385			59,925
Interest Expense	5,184			3,952
Net Interest Income, Tax-Equivalent (Non-GAAP) (3)	60,201			55,973
Tax-Equivalent Adjustment (Non-GAAP) (3)	2,863			2,780
Net Interest Margin, annualized (Non-GAAP) (3)	3.16		%	3.16		%
Efficiency Ratio Calculation: (4)
Noninterest Expense	46,661			44,337
Less: Intangible Asset Amortization	210			223
Net Noninterest Expense	46,451			44,114
Net Interest Income, Tax-Equivalent (Non-GAAP) (3)	60,201			55,973
Noninterest Income	20,893			21,184
Less: Net Securities Gain	10			144
Net Gross Income	81,084			77,013
Efficiency Ratio (Non-GAAP)	57.29		%	57.28		%

# 42

Arrow Financial Corporation

Selected Year-to-Date Information - Continued

(Dollars In Thousands, Except Per Share Amounts- Unaudited)

Footnotes:
1.	Share and Per Share Data have been restated for the September 28, 2017, 3% stock dividend.
2.	Tangible Book Value, Tangible Equity and Return on Tangible Equity exclude goodwill and other intangible assets, net from total equity.  These are non-GAAP financial measures which we believe provide investors with information that is useful in understanding our financial performance. See "Use of Non-GAAP Financial Measures" on page 38.
		9/30/2017			9/30/2016
	Total Stockholders' Equity (GAAP)	$	244,648		$	229,208
	Less: Goodwill and Other Intangible assets, net	24,268			24,675
	Tangible Equity (Non-GAAP)	$	220,380		$	204,533
	Period End Shares Outstanding	13,891			13,828
	Tangible Book Value per Share (Non-GAAP)	$	15.86		$	14.79
	Net Income	21,255			19,934
	Return on Tangible Equity (Net Income/Tangible Equity - Annualized)	13.21		%	13.42		%
3.	Net Interest Margin is the ratio of our annualized tax-equivalent net interest income to average earning assets. This is also a non-GAAP financial measure which we believe provides investors with information that is useful in understanding our financial performance. See "Use of Non-GAAP Financial Measures" on page 38.
		9/30/2017			9/30/2016
	Interest Income (GAAP)	$	62,522		$	57,145
	Add: Tax-Equivalent adjustment (Non-GAAP)	$	2,863		$	2,780
	Net Interest Income - Tax Equivalent (Non-GAAP)	$	65,385		$	59,925
	Net Interest Income (GAAP)	$	57,338		$	53,193
	Add: Tax-Equivalent adjustment (Non-GAAP)	2,863			2,780
	Net Interest Income - Tax Equivalent (Non-GAAP)	$	60,201		$	55,973
	Average Earning Assets	$	2,550,076		$	2,368,454
	Net Interest Margin (Non-GAAP)*	3.16		%	3.16		%
4.	Financial Institutions often use the "efficiency ratio", a non-GAAP ratio, as a measure of expense control. We believe the efficiency ratio provides investors with information that is useful in understanding our financial performance. We define our efficiency ratio as the ratio of our noninterest expense to our net gross income (which equals our tax-equivalent net interest income plus noninterest income, as adjusted). See "Use of Non-GAAP Financial Measures" on page 38.

* Year-to-date ratios have been annualized.

# 43

Average Consolidated Balance Sheets and Net Interest Income Analysis
(see “Use of Non-GAAP Financial Measures” on page 38)
(Fully Taxable Basis using a marginal tax rate of 35%)
(Dollars In Thousands)
Quarter Ended September 30:	2017								2016
				Interest			Rate					Interest			Rate
	Average			Income/			Earned/		Average			Income/			Earned/
	Balance			Expense			Paid		Balance			Expense			Paid
Interest-Bearing Deposits at Banks	$	27,143		$	104		1.52	%	$	21,635		$	34		0.63	%
Investment Securities:
Fully Taxable	389,092			1,928			1.97		409,355			1,893			1.84
Exempt from Federal Taxes	288,276			2,404			3.31		287,357			2,332			3.23
Loans	1,892,766			18,129			3.80		1,680,850			15,963			3.78
Total Earning Assets	2,597,277			22,565			3.45		2,399,197			20,222			3.35
Allowance for Loan Losses	(17,393		)						(16,696		)
Cash and Due From Banks	37,592								36,041
Other Assets	108,177								109,582
Total Assets	$	2,725,653							$	2,528,124
Deposits:
Interest-Bearing Checking Accounts	$	869,748		376			0.17		$	869,439		320			0.15
Savings Deposits	682,347			356			0.21		607,850			231			0.15
Time Deposits of $250,000 or More	31,067			66			0.84		75,388			128			0.68
Other Time Deposits	166,776			241			0.57		129,960			164			0.50
Total Interest-Bearing Deposits	1,749,938			1,039			0.24		1,682,637			843			0.20
Short-Term Borrowings	187,864			465			0.98		134,946			152			0.45
FHLBNY Term Advances and Other Long-Term Debt	75,000			445			2.35		75,000			410			2.17
Total Interest-Bearing Liabilities	2,012,802			1,949			0.38		1,892,583			1,405			0.30
Demand Deposits	443,840								381,195
Other Liabilities	25,210								26,298
Total Liabilities	2,481,852								2,300,076
Stockholders’ Equity	243,801								228,048
Total Liabilities and Stockholders’ Equity	$	2,725,653							$	2,528,124
Net Interest Income (Tax-equivalent Basis)      (Non-GAAP) (1)				20,616								18,817
Reversal of Tax Equivalent Adjustment				(966		)	(0.15	)%				(940		)	(0.16	)%
Net Interest Income				$	19,650							$	17,877
Net Interest Spread (Non-GAAP) (1)							3.07	%							3.05	%
Net Interest Margin (Non-GAAP) (1)							3.15	%							3.12	%

¹See Note 3 on p. 43.

# 44

Average Consolidated Balance Sheets and Net Interest Income Analysis
(see “Use of Non-GAAP Financial Measures” on page 38)
(Fully Taxable Basis using a marginal tax rate of 35%)
(Dollars In Thousands)
Nine-Month Period Ended September 30:	2017								2016
				Interest			Rate					Interest			Rate
	Average			Income/			Earned/		Average			Income/			Earned/
	Balance			Expense			Paid		Balance			Expense			Paid
Interest-Bearing Deposits at Banks	$	25,076		$	242		1.29	%	$	21,665		$	100		0.62	%
Investment Securities:
Fully Taxable	398,231			5,940			1.99		427,937			6,006			1.87
Exempt from Federal Taxes	287,553			7,116			3.31		276,953			6,861			3.31
Loans	1,839,216			52,087			3.79		1,641,899			46,958			3.82
Total Earning Assets	2,550,076			65,385			3.43		2,368,454			59,925			3.38
Allowance for Loan Losses	(17,172		)						(16,316		)
Cash and Due From Banks	36,056								32,327
Other Assets	108,058								109,444
Total Assets	$	2,677,018							$	2,493,909
Deposits:
Interest-Bearing Checking Accounts	$	894,206		1,088			0.16		$	909,268		941			0.14
Savings Deposits	680,419			963			0.19		604,886			677			0.15
Time Deposits of $250,000 or More	31,974			187			0.78		66,230			313			0.63
Other Time Deposits	166,747			702			0.56		130,174			497			0.51
Total Interest-Bearing Deposits	1,773,346			2,940			0.22		1,710,558			2,428			0.19
Short-Term Borrowings	150,400			946			0.84		98,159			303			0.41
FHLBNY Term Advances and Other Long-Term Debt	75,000			1,298			2.31		75,000			1,221			2.17
Total Interest-Bearing Liabilities	1,998,746			5,184			0.35		1,883,717			3,952			0.28
Demand Deposits	414,085								361,494
Other Liabilities	24,671								25,484
Total Liabilities	2,437,502								2,270,695
Stockholders’ Equity	239,516								223,214
Total Liabilities and Stockholders’ Equity	$	2,677,018							$	2,493,909
Net Interest Income (Tax-equivalent Basis)    (Non-GAAP)				60,201								55,973
Reversal of Tax Equivalent Adjustment				(2,863		)	(0.15	)%				(2,780		)	(0.16	)%
Net Interest Income				$	57,338							$	53,193
Net Interest Spread (Non-GAAP) (1)							3.08	%							3.10	%
Net Interest Margin (Non-GAAP) (1)							3.16	%							3.16	%

¹See Note 3 on p. 43.

# 45

OVERVIEW

We reported net income for the third quarter of 2017 of $7.4 million, an increase of $678 thousand, or 10.1%, over our net income for the third quarter of 2016. Diluted earnings per share (EPS) for the quarter was $0.53, an increase of 10.4% from the EPS of $0.48 reported for the third quarter of 2016. Return on average equity (ROE) for the third quarter of 2017 continued to be strong at 12.07%, up from an ROE of 11.75% for the third quarter ended September 30, 2016. Return on average assets (ROA) for the 2017third quarter was 1.08%, an increase from an ROA of 1.06% for the third quarter ended September 30, 2016. Tax-equivalent net interest income (a non-GAAP measure) increased between the respective quarters by approximately 9.6%, mainly due to the 8.3% increase in average earning assets in the third quarter of 2017. The composition of earning assets changed in the current quarter through an increase in higher yielding loans and a decrease in lower yielding investment securities. Total loans increased between the respective period ends by $201.6 million, or 11.8%, while investment securities decreased by $18.4 million, or 2.7%. Salaries and employee benefits expenses increased by 6.4% in the third quarter of 2017 compared to the 2016 quarter, due to increased staffing levels, normal salary increases, and increases in medical claims under our health benefit plans. Total assets were $2.74 billion at September 30, 2017, which represented an increase of $139.2 million, or 5.3%, from the level at December 31, 2016, and an increase of $164.0 million, or 6.4%, from the September 30, 2016 level.

The changes in net income, net interest income and net interest margin between the three and nine-month periods are discussed in detail under the heading "RESULTS OF OPERATIONS," beginning on page 59.

Stockholders’ equity was $244.6 million at September 30, 2017, an increase of $11.8 million, or 5.1%, from the December 31, 2016 level of $232.9 million, and an increase of $15.4 million, or 6.7%, from the prior-year level. The components of the change in stockholders’ equity since year-end 2016 are presented in the Consolidated Statement of Changes in Stockholders’ Equity on page 6, and are discussed in more detail in the next section.

Regulatory Capital and Increase in Stockholders' Equity: At September 30, 2017, we continued to exceed by a substantial amount all required minimum capital ratios under the new bank regulatory capital rules at both the holding company and bank levels. At that date, both of our banks, as well as our holding company, continued to qualify as "well-capitalized" under the revised capital classification guidelines that became effective contemporaneously with the new bank regulatory capital rules in 2015. Because of our continued profitability and strong asset quality, our regulatory capital levels throughout recent years have consistently remained well in excess of the various required regulatory minimums in effect from time to time, as they do at present. As a result of the Dodd-Frank Act, however, required minimum regulatory capital levels for insured banks and their parent holding companies will continue to increase, as a percentage of risk-based assets in the upcoming years through 2019.

At September 30, 2017, our book value per share was $17.61, up by 6.2% over the prior-year level, and our tangible book value per share (a non-GAAP measure that deducts intangible assets from stockholders' equity) was $15.86, an increase of $1.07, or 7.2%, over the level as of September 30, 2016. See the disclosure on page 38 related to our use of non-GAAP financial measures generally, and tangible book value, specifically. In the first nine months of 2017, total stockholders' equity increased by 5.1% (not annualized) and our total book value per share also increased by 5.0%. The increase in stockholders' equity over the first nine months of 2017 principally reflected the following factors: (i) $21.3 million of net income for the period and (ii) issuance of $2.7 million of common stock through our employee benefit and dividend reinvestment plans; reduced by (iii) cash dividends of $10.1 million; and (iv) repurchases of our own common stock, primarily in connection with our approved treasury stock repurchase plan, of $2.8 million. On September 30, 2017, our closing stock price was $34.35, representing a trading multiple of 2.17 to our tangible book value. As adjusted for a 3.0% stock dividend distributed September 28, 2017, the Company paid a quarterly cash dividend of $0.236 per share for the third quarter of 2016, and a cash dividend of $0.243 per share for the last quarter of 2016 and the first, second, and third quarters of 2017.

Loan Quality: Our net charge-offs for the third quarter of 2017 were $547 thousand as compared to $303 thousand for the comparable 2016 quarter. Our ratio of net charge-offs to average loans (annualized) was 0.11% for the third quarter of 2017 compared to 0.07% for the third quarter of 2016. Our peer group's weighted average ratio of net charge-offs to average loans was 0.07% for the quarter ended June 30, 2017. See page 37 for a discussion of our peer group. At September 30, 2017, our allowance for loan losses was $17.7 million representing 0.93% of total loans, down 4 basis points from the December 31, 2016 ratio. We believe this allowance is appropriate and reflects the continuing strong credit quality in the loan portfolio.

Nonperforming loans were $7.3 million at September 30, 2017, representing 0.38% of period-end loans, a decrease of 2 basis points from our prior year comparable quarter ratio, which compares favorably with the weighted average ratio of our peer group of 0.72% at June 30, 2017.

Loan Segments: During the third quarter of 2017, we experienced increases in outstanding balances in consumer loan and residential real estate loan segments of our loan portfolio, without any significant deterioration in our credit quality. During the quarter, our total loans grew by $30.2 million, or 1.6%. The largest portion of such increase was in residential real estate loans, which expanded by $18.9 million, or 2.6%. Consumer loans also increased during the quarter by $13.3 million, or 2.3%. The total commercial loan portfolio decreased slightly by $2.0 million, or 0.4%.

Commercial Loans: These loans comprised 6.6% of our loan portfolio at period-end. The business sector in our service area, including small- and mid-sized businesses with headquarters in the area, continued to be in reasonably good financial condition at period-end, and some lines of business appear to be experiencing modest improvement during the year.

Commercial Real Estate Loans: These loans comprised 23.1% of our loan portfolio at period-end. Commercial property values in our region have remained stable in recent periods. We update the appraisals on our nonperforming and watched CRE loan properties as deemed necessary, usually when the loan is downgraded or when we perceive significant market deterioration since our last appraisal.

# 46

Consumer Loans: These loans (primarily automobile loans) comprised 31.0% of our loan portfolio at period-end. Consumer automobile loans at September 30, 2017, were $585 million, or 98.8% of this portfolio segment. In the first nine months of 2017, we did not experience any significant increase in our delinquency rate or in the percentage of nonperforming loans in this segment.

Residential Real Estate Loans: These loans, including home equity loans, made up 39.3% of our portfolio at period-end. The residential real estate market in our service area has been stable in recent periods. During the first nine months of 2017, refinancings of our own loans represented about 20% of our total originations. We originated nearly all of the residential real estate loans currently held in our portfolio and apply conservative underwriting standards to our originations. We typically sell a portion of our residential real estate mortgage originations into the secondary market. The ratio of our sales of originations to total originations tends to fluctuate from period to period, although this ratio has generally declined somewhat in recent periods.

Liquidity and Access to Credit Markets: We have not experienced any liquidity problems or special concerns thus far in 2017, nor did we in any prior years back to and during the financial crisis. The terms of our lines of credit with our correspondent banks, the FHLBNY and the Federal Reserve Bank have not changed significantly in recent periods (see our general liquidity discussion on page 58), although rates on such borrowings have begun to move a little recently in response to gradual tightening of short-term rates. Historically, we have principally relied on asset-based liquidity (i.e., funds in overnight investments and cash flow from maturing investments and loans) with liability-based liquidity as a secondary source of funds (our main liability-based sources are overnight borrowing arrangements with our correspondent banks, an arrangement for overnight borrowing and term credit advances from the FHLBNY, and an additional arrangement for short-term advances at the Federal Reserve Bank discount window). We regularly perform a liquidity stress test and periodically test our contingent liquidity plan to ensure that we can generate an adequate amount of available funds to meet a wide variety of potential liquidity crises, including a severe crisis.

Visa Class B Common Stock: We, like other former Visa member banks, bear some indirect contingent liability for Visa's direct liability arising out of certain antitrust claims involving merchant discounts to the extent that Visa's liability might exceed the remaining litigation escrow account amount. In light of the current state of covered litigation at Visa, which is winding down, as well as the substantial remaining dollar amounts in Visa's escrow fund, we determined that the balance that Visa maintains in its escrow fund is substantially sufficient to satisfy Visa's remaining direct liability to such claims without further resort to the contingent liability of the former Visa member banks such as ours. At September 30, 2017, the Company held 27,771 shares of Visa Class B common stock. A potential future conversion of these shares into Visa Class A common stock could result in our receiving approximately 46 thousand shares of the latter. There continue to be restrictions remaining on Visa Class B shares held by us. We continue not to recognize any economic value for these shares.

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CHANGE IN FINANCIAL CONDITION

Summary of Selected Consolidated Balance Sheet Data

(Dollars in Thousands)

	At Period-End						$ Change			$ Change			% Change		% Change
	September 30, 2017		December 31, 2016		September 30, 2016		From December			From September			From December (not annualized)		From September
Interest-Bearing Bank Balances	$	24,983	$	14,331	$	35,503	$	10,652		$	(10,520	)	74.3	%	(29.6	)%
Securities Available-for-Sale	315,459		346,996		339,190		(31,537		)	(23,731		)	(9.1	)%	(7.0	)%
Securities Held-to-Maturity	341,526		345,427		338,238		(3,901		)	3,288			(1.1	)%	1.0	%
Loans (1)	1,908,799		1,753,268		1,707,216		155,531			201,583			8.9	%	11.8	%
Allowance for Loan Losses	17,695		17,012		16,975		683			720			4.0	%	4.2	%
Earning Assets (1)	2,597,471		2,470,934		2,425,518		126,537			171,953			5.1	%	7.1	%
Total Assets	$	2,744,462	$	2,605,242	$	2,580,485	$	139,220		$	163,977		5.3	%	6.4	%
Demand Deposits	$	448,515	$	387,280	$	381,760	$	61,235		$	66,755		15.8	%	17.5	%
Interest-Bearing Checking Accounts	967,250		877,988		993,221		89,262			(25,971		)	10.2	%	(2.6	)%
Savings Deposits	696,805		651,965		629,201		44,840			67,604			6.9	%	10.7	%
Time Deposits over $250,000	28,464		32,878		45,237		(4,414		)	(16,773		)	(13.4	)%	(37.1	)%
Other Time Deposits	166,082		166,435		163,768		(353		)	2,314			(0.2	)%	1.4	%
Total Deposits	$	2,307,116	$	2,116,546	$	2,213,187	$	190,570		$	93,929		9.0	%	4.2	%
Federal Funds Purchased and   Securities Sold Under Agreements   to Repurchase	$	61,419	$	35,836	$	38,589	$	25,583		$	22,830		71.4	%	59.2	%
FHLBNY Advances - Overnight	33,000		123,000		—		(90,000		)	33,000			(73.2	)%	—	%
FHLBNY Advances - Term	55,000		55,000		55,000		—			—			—	%	—	%
Stockholders' Equity	244,648		232,852		229,208		11,796			15,440			5.1	%	6.7	%

(1) Includes Nonaccrual Loans

Municipal Deposits:Fluctuations in balances of our interest-bearing checking accounts are largely the result of municipal deposit fluctuations.  Municipal deposits on average represent 28% to 34% of our total deposits. Municipal deposits are typically placed in interest-bearing checking and savings accounts, as well as various time deposits.

In general, there is a seasonal pattern to municipal deposits which dip to a low point in August each year.  Account balances tend to increase throughout the fall and into early winter from tax deposits, flatten out after the beginning of the ensuing calendar year, and increase again at the end of March from the electronic deposit of NYS Aid payments to school districts.  In addition to these seasonal fluctuations within types of accounts, the overall level of municipal deposit balances fluctuates from year-to-year as some municipalities move their accounts in and out of our banks due to competitive factors.  Often, the balances of municipal deposits at the end of a quarter are not representative of the average balances for that quarter.

If in the future, interest rates begin to rise significantly or the competition for municipal deposits otherwise becomes more intense, we may experience an elevation in the rates we are forced to pay on such deposits above our normal rates or, if we decline to pay such rates, we may experience a sustained decrease in municipal deposit levels.

Changes in Sources of Funds: Our total deposits increased$190.6 million, or 9.0%, from December 31, 2016 to September 30, 2017. Our municipal deposits increased by 14.5% during the period, mainly due to the collection of school taxes, while our consumer and business deposit balances increased by 6.7%. Our significant loan growth during the first nine months of 2017 and our reduction in FHLBNY Advances-Overnight was funded by a combination of our increase in deposits and our securities sold under agreements to repurchase, in addition to a reduction in our investment securities portfolio. At September 30, 2017, our term advances from the FHLBNY were $55 million, unchanged from both our year-end 2016 balance and our September 30, 2016 balance.

Changes in Earning Assets: Our loan portfolio at September 30, 2017, was $1.91 billion, up by $155.5 million, or 8.9%, from the December 31, 2016 level and up by $201.6 million, or 11.8%, from the September 30, 2016 level. We experienced the following trends in our four largest segments:

1. Commercial loans. This segment of our portfolio increased significantly by $20.2 million, or 19.2%, during the first nine months of 2017, representing the impact of demand for such loans during the period.

2. Commercial real estate loans. This segment of our portfolio increased by $9.1 million, or 2.1%, during the first nine months of 2017, representing the continued strong demand for such loans offset in part by a few large payoffs during the period.

3. Consumer loans (primarily automobile loans through indirect lending). As of September 30, 2017, these loans, primarily auto loans, had increased by $54.7 million, or 10.2%, from the December 31, 2016 balance, reflecting a continuation of strong demand for new and used vehicles region-wide and an expansion of our dealer network for indirect lending.

4. Residential real estate loans. This segment increased during the first nine months of 2017, by $71.6 million, or 10.5%. As in prior periods, we elected to sell a portion of the residential mortgage loans we originated during the period to Freddie Mac. Gross originations were up during the period, compared to the comparable 2016 period, and we retained a higher percentage of our originations than in

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the year earlier period. Nevertheless, demand for new mortgage loans remained strong throughout the first nine months, reflecting continuing low rates and a stable local economy with low unemployment.

Deposit Trends

The following two tables provide information on trends in the balance and mix of our deposit portfolio by presenting, for each of the last five quarters, the quarterly average balances by deposit type and the percentage of total deposits represented by each deposit type. The principal change in deposit balances over the period was the steady and significant increase in demand deposits and savings deposits and little or no increase in other types of deposits, including time deposits. As mentioned previously, the volatility in interest-bearing checking deposit account balances is mainly due to seasonal fluctuations in municipal deposits. If and to the extent that interest rates, and corresponding deposit rates, across all maturities, begin to increase in future periods from their current continuing very low rates, even if such increases are very gradual, we would expect this multi-year migration to lower-rate deposits to change, as depositors shift back to higher-rate, longer term deposits, putting heightened pressure on our net interest margin.

Quarterly Average Deposit Balances

(Dollars in Thousands)

	Quarter Ended
	9/30/2017		6/30/2017		3/31/2017		12/31/2016		9/30/2016
Demand Deposits	$	443,840	$	408,214	$	389,606	$	383,226	$	381,195
Interest-Bearing Checking Accounts	869,748		918,235		894,911		921,971		869,439
Savings Deposits	682,347		681,197		677,662		649,928		607,850
Time Deposits over $250,000	31,067		31,126		33,758		39,058		41,267
Other Time Deposits	166,776		167,593		165,861		165,973		164,081
Total Deposits	$	2,193,778	$	2,206,365	$	2,161,798	$	2,160,156	$	2,063,832

Percentage of Total Quarterly Average Deposits

	Quarter Ended
	9/30/2017		6/30/2017		3/31/2017		12/31/2016		9/30/2016
Demand Deposits	20.2	%	18.5	%	18.0	%	17.7	%	18.5	%
Interest-Bearing Checking Accounts	39.6	%	41.6	%	41.4	%	42.7	%	42.1	%
Savings Deposits	31.2	%	30.9	%	31.3	%	30.1	%	29.4	%
Time Deposits over $250,000	1.4	%	1.4	%	1.6	%	1.8	%	2.0	%
Other Time Deposits	7.6	%	7.6	%	7.7	%	7.7	%	8.0	%
Total Deposits	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%

Quarterly Cost of Deposits

	Quarter Ended
	9/30/2017		6/30/2017		3/31/2017		12/31/2016		9/30/2016
Demand Deposits	—	%	—	%	—	%	—	%	—	%
Interest-Bearing Checking Accounts	0.17		0.17		0.15		0.15		0.15
Savings Deposits	0.21		0.19		0.17		0.16		0.15
Time Deposits over $250,000	0.84		0.85		0.66		0.55		0.59
Other Time Deposits	0.57		0.56		0.56		0.60		0.56
Total Deposits	0.19		0.18		0.17		0.16		0.16

During the quarter ended September 30, 2017, our average deposit cost on our interest bearing deposit categories increased slightly due to certain deposit customers shifting funds to higher rate deposit products. This shift may represent the beginning of a general increase in deposit rates for banks in response to the program initiated by the Federal Reserve in late 2015 to drive up short term rates through a series of gradual rate increases. Given the uncertainty surrounding the future of interest rates, we are unable to predict at this time what the short- or long-term effect of the Federal Reserve’s interest rate determinations may be.

Non-Deposit Sources of Funds

We have several sources of funding other than new deposits. Historically, we have borrowed funds from the FHLBNY under a variety of programs, including fixed and variable rate short-term borrowings and borrowings in the form of "structured advances." These structured advances typically have original maturities of 3 to 10 years with some advances being callable by the FHLBNY at certain dates. If the advances are called, we may elect to receive replacement advances from the FHLBNY at the then prevailing FHLBNY rates of interest. We currently do not have, and have not had in recent periods, any structured advances in this portfolio.

We no longer rely on TRUPs as a source of new funds. As a result of the passage of the Dodd-Frank Act in 2010 and its removal of Tier 1 regulatory capital treatment for TRUPs issued after the Act's grandfathering date, we like all insured financial institutions of our size

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or larger have not issued any TRUPs since that date and are not likely to issue any TRUPs in the future. However, consistent with the grandfathering provision in Dodd-Frank, the $20 million principal amount of Junior Subordinated Obligations Issued to Unconsolidated Subsidiary Trusts listed on our consolidated balance sheet as of September 30, 2017 (i.e., our previously issued TRUPS) will, subject to certain limits, continue to qualify as Tier 1 regulatory capital for Arrow until such TRUPs mature or are redeemed, as is further discussed under “Capital Resources” beginning on page 55 of this Report. These trust preferred securities are subject to early redemption by us if the proceeds cease to qualify as Tier 1 capital of Arrow for any reason, or if any of certain other unanticipated but negative events should occur, such as any adverse change in tax laws that might deny the Company the ability to deduct interest paid on these obligations for federal income tax purposes.

Loan Trends

The following two tables present, for each of the last five quarters, the quarterly average balances by loan type and the percentage of total loans represented by each loan type. For purposes of the following tables only, we have broken out Home Equity loans from Residential Real Estate loans (they are otherwise included in a single category in this Report). We have also combined Commercial Loans and Commercial Real Estate Loans into a single category (they are treated as separate categories in other sections of this Report). Over the last five quarters, the average balances for all of the below-listed categories of loans have steadily increased, although at different rates.

Quarterly Average Loan Balances

(Dollars in Thousands)

	Quarter Ended
	9/30/2017		6/30/2017		3/31/2017		12/31/2016		9/30/2016
Commercial and Commercial Real Estate	$	561,260	$	556,014	$	541,187	$	532,456	$	524,523
Residential Real Estate	563,793		538,884		518,263		490,427		470,865
Home Equity	137,251		138,125		135,910		135,939		133,009
Consumer Loans (1)	630,462		609,520		585,753		567,916		552,454
Total Loans	$	1,892,766	$	1,842,543	$	1,781,113	$	1,726,738	$	1,680,851

Percentage of Total Quarterly Average Loans

	Quarter Ended
	9/30/2017		6/30/2017		3/31/2017		12/31/2016		9/30/2016
Commercial and Commercial Real Estate	29.7	%	30.2	%	30.4	%	30.8	%	31.2	%
Residential Real Estate	29.8	%	29.2	%	29.1	%	28.4	%	28.0	%
Home Equity	7.3	%	7.5	%	7.6	%	7.9	%	7.9	%
Consumer Loans (1)	33.2	%	33.1	%	32.9	%	32.9	%	32.9	%
Total Loans	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%

⁽¹⁾ The category “Other Consumer Loans”, in the tables above, includes home improvement loans secured by mortgages, which are otherwise included by us as part of our residential real estate loans in this Report.

Maintenance of High Quality in the Loan Portfolio: In the first nine months of 2017, we did not experience any material weakening in the quality of our loan portfolio or any segment thereof. In general, we have historically underwritten our residential real estate loans to secondary market standards for prime loans and have not engaged in subprime mortgage lending as a business line. Similarly, we have historically applied high underwriting standards in our commercial and commercial real estate lending operations and generally in our indirect (automobile) lending program as well. We have occasionally made loans, including indirect loans, to borrowers having FICO scores below the highest credit quality classifications, where special circumstances such as competitive considerations have led us to conclude it was appropriate to do so, with suitable protections against any enhanced perceived risk in such loans. We also have had extensions of credit outstanding to borrowers who have developed credit problems after origination resulting in deterioration of their FICO scores.

Residential Real Estate Loans: In recent years, residential real estate and home equity loans have represented the largest single segment of our loan portfolio (comprising 39.3% of the entire portfolio at September 30, 2017), eclipsing both our commercial and commercial real estate loans, which represented 29.7% of the portfolio on that date, and our consumer loans (primarily automobile loans), which were 31.0% of the portfolio. Our gross originations for residential real estate loans (including refinancings of pre-existing mortgage loans) were $151.7 million and $113.4 million for the first nine months of 2017 and 2016, respectively. We expect this trend (i.e., substantially increased originations over the prior year periods) to continue through 2017 and into 2018. Origination totals substantially exceeded the sum of repayments and prepayments in the third quarters of both years, but in each period we also sold a portion of these originations on or immediately after origination. In the first nine months of 2017, we sold $13.7 million, or 9.0%, of our originations. In the first nine months of 2016, we sold a larger dollar amount, $19.3 million, or 17.1%, of our originations, and at a higher premium. During recent periods, commencing in 2014, we have offered additional competitive products for variable rate (adjustable) residential real estate and construction loans. These variable rate loans have not been subprime loans. We have not sold any of these variable rate loans into the secondary market.

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Commercial Loans and Commercial Real Estate Loans: For the first nine months of 2017, combined commercial and commercial real estate loan originations continued to be strong, with an annualized growth rate of 7.3%.

Substantially all commercial and commercial real estate loans in our portfolio were extended to businesses or borrowers located in our regional market. Less than 12% of the loans in the commercial portfolio have variable rates tied to prime, FHLBNY rates or U.S. Treasury indices. We have not experienced any significant weakening in the quality of our commercial loan portfolio in recent years.

Growth in our commercial loans and commercial real estate loans has slowed in recent periods. It is entirely possible that demand for commercial and commercial real estate loans may generally weaken in upcoming periods and/or that the quality of this segment of the portfolio may experience stress in upcoming periods. This is particularly likely if the ultimate effect of the Fed's current rate hike program triggers a significant and long-lasting increase in prevailing interest rates for medium- or long-term credits. Generally, however, the business sector, at least in our service area, appeared to be in reasonably good financial condition at period-end.

Consumer Loans (primarily automobile loans through indirect lending): At September 30, 2017, our automobile loans (primarily loans originated through dealerships located in upstate New York and Vermont) represented the third largest category of loans in our portfolio, and continued to be a significant component of our business comprising almost a third of our loan portfolio.

Our new automobile loan volume for the first nine months of 2017 remained strong, at $234.6 million, up from the $218.5 million originated in the first nine months of 2016. As a result of these originations, our consumer loan portfolio also grew in the first nine months of 2017, by $54.7 million, or 10.2%, from our December 31, 2016 balance.

For credit quality purposes, we assign our potential automobile loan customers into one of four tiers, ranging from lower to higher quality in terms of anticipated credit risk. Our lending staff not only utilizes credit evaluation software tools but also reviews and evaluates each loan individually. We believe our disciplined approach to evaluating risk has contributed to maintaining our strong loan quality in this segment of our portfolio.

Recently, several market indicators have suggested that auto loan demand is weakening somewhat on a national scale, although not in every market area. Our average maturity for automobile loan originations has expanded in recent years, reflective of a larger market development. If we encounter some weakening in auto demand in our service area (and we have not, to date), we may experience limited, if any, overall growth in this segment of our portfolio in upcoming periods, regardless of whether the auto company lending affiliates continue to offer highly-subsidized loans. Of course, in this segment of our portfolio, as in the other segments, any substantial increase in prevailing interest rates in upcoming periods, presumably in response to the Fed's rate rise program, would likely have some negative impact on our originations. The same also may occur if economic conditions in our indirect loan service area should generally weaken in upcoming periods.

The following table indicates the annualized tax-equivalent yield of each loan category for the past five quarters.

Quarterly Taxable Equivalent Yield on Loans

	Quarter Ended
	9/30/2017		6/30/2017		3/31/2017		12/31/2016		9/30/2016
Commercial and Commercial Real Estate	4.32	%	4.30	%	4.25	%	4.29	%	4.28	%
Residential Real Estate	3.98	%	4.03	%	4.10	%	4.09	%	4.20	%
Home Equity	3.55	%	3.41	%	3.28	%	3.11	%	3.13	%
Consumer Loans	3.23	%	3.21	%	3.14	%	3.18	%	3.19	%
Total Loans	3.80	%	3.79	%	3.76	%	3.78	%	3.82	%

The average yield in our total loan portfolio during the third quarter of 2017 was down slightly compared to the average yield during the third quarter of 2016. For the quarter, yields on all loan types increased in comparison to the immediately preceding quarter with the exception of the residential real estate portfolio. The residential real estate portfolio's overall yield continues to decline as cash flow from the portfolio is replaced with new production in the current rate environment. However, the average rates on newly-originated loans made by us in all segments of our portfolio were at least equal to, and in most cases slightly above, the average rates for comparable loans originated by us in the year-earlier quarter.

    Regardless of the future direction or magnitude of changes in prevailing interest rates, the yield on our loan portfolio will ultimately be impacted by such changes. However, the timing and degree of responsiveness, in loans generally and as between various categories of loans, will also be influenced by a variety of other factors, including the extent of federal government participation in the home mortgage market, the makeup of our loan portfolio, the shape of the yield curve, consumer expectations and preferences, and the rate at which the portfolio expands.

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Investment Portfolio Trends

The table below presents the changes in the period-end balances for the securities available-for-sale and the securities held-to-maturity investment portfolios from December 31, 2016 to September 30, 2017 (in thousands).

The net reduction in the two portfolios on a combined basis during the period (of $31.5 million, or 4.8%) reflected our strategy in recent years to reallocate earning assets from investment securities to higher yielding loans to maximize earning asset yields.

	(Dollars in Thousands)
	Fair Value at Period-End							Net Unrealized Gains (Losses) For Period Ended
	9/30/2017		12/31/2016		Change			9/30/2017			12/31/2016			Change
Securities Available-for-Sale:
U.S. Treasury Securities	$	64,730	$	54,706	$	10,024		$	19		$	5		$	14
U.S. Agency Securities	82,248		92,671		(10,423		)	(17		)	262			(279		)
State and Municipal Obligations	11,902		27,690		(15,788		)	27			6			21
Mortgage-Backed Securities-Residential	152,806		167,239		(14,433		)	(52		)	(950		)	898
Corporate and Other Debt Securities	2,299		3,308		(1,009		)	(201		)	(204		)	3
Mutual Funds and Equity Securities	1,474		1,382		92			354			262			92
Total	$	315,459	$	346,996	$	(31,537	)	$	130		$	(619	)	$	749
Securities Held-to-Maturity:
State and Municipal Obligations	$	279,384	$	267,127	$	12,257		$	1,646		$	(1,765	)	$	3,411
Mortgage-Backed Securities-Residential	64,515		75,624		(11,109		)	727			89			638
Corporate and Other Debt Securities	—		1,000		(1,000		)	—			—			—
Total	$	343,899	$	343,751	$	148		$	2,373		$	(1,676	)	$	4,049

At September 30, 2017, we held no investment securities in either of our securities portfolios that consisted of or included, directly or indirectly, obligations of foreign governments or governmental agencies or foreign issuers.

As of both period-ends presented in the above table, all listed Mortgage-Backed Securities-Residential consisted of mortgage-backed security pools and collateralized mortgage obligations (CMOs) that were guaranteed by U.S. Government Agency or government sponsored enterprises (GSEs), such as Fannie Mae or Freddie Mac. Mortgage-backed security pools provide to the investor monthly portions of principal and interest payments pursuant to the contractual obligations of the underlying mortgages. In the case of most CMOs, the principal and interest payments on the pooled mortgages are separated into two or more components (tranches), with each tranche having a separate estimated life, risk profile and yield. Our practice has been to purchase only those CMOs that are guaranteed by GSEs or other federal agencies and only those CMO tranches with shorter maturities and no more than moderate extension risk. Included in corporate and other debt securities are trust preferred securities issued by other financial institutions prior to May 19, 2010, the grandfathering date for TRUPs in Dodd Frank, that were highly rated at the time of purchase.

Other-Than-Temporary Impairment

Each quarter we evaluate all investment securities with a fair value less than amortized cost, both in the available-for-sale portfolio and the held-to-maturity portfolio, to determine if there exists other-than-temporary impairment for any such security as defined under generally accepted accounting principles. There were no other-than-temporary impairment losses in the first nine months of 2017.

Change in Net Unrealized Securities Gains (Losses): Nearly all of the change in our net unrealized gains or losses during recent periods has been attributable to changes in the market yields during the periods in question, with little or no change in the credit-worthiness of the issuers.

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Investment Sales, Purchases and Maturities

(In Thousands)

The following table summarizes sales of investment securities within the available-for-sale and held-to-maturity portfolios for the three and nine-month periods ended September 30, 2017 and 2016:

	Three Months Ended				Nine Months Ended
Sales	9/30/2017		9/30/2016		9/30/2017		9/30/2016
Available-For-Sale Portfolio:
Mortgage-Backed Securities-Residential	$	—	$	—	$	—	$	—
U.S. Treasury Securities	—		—		—		—
U.S. Agency Securities	10,005		—		10,005		4,793
Corporate Bonds and Other	—		—		—		5,631
Total	10,005		—		10,005		10,424
Net Gains on Securities Transactions	10		—		10		144
Proceeds on the Sales of Securities	$	10,015	$	—	$	10,015	$	10,568
Held-to-Maturity Portfolio:
State and Municipal Obligations	$	—	$	—	$	—	$	2
Net Gains on Securities Transactions	—		—		—		—
Proceeds on the Sales of Securities	$	—	$	—	$	—	$	2

Investment yields in the debt markets experienced some volatility in the fourth quarter of 2016 and the first nine months of 2017. We regularly review our interest rate risk position along with our security holdings to evaluate if market opportunities have arisen that may permit us to reposition certain securities available-for-sale to enhance portfolio performance.

The following table summarizes purchases of investment securities within the available-for-sale and held-to-maturity portfolios for the three and nine-month periods ended September 30, 2017 and 2016, as well as proceeds from the maturity and calls of investment securities within each portfolio for the respective periods presented:

	Three Months Ended				Nine Months Ended
Purchases:	9/30/2017		9/30/2016		9/30/2017		9/30/2016
Available-for-Sale Portfolio
U.S. Treasury Securities	$	10,179	$	—	$	10,179	$	—
U.S. Agency Securities	—		—		—		—
State and Municipal Obligations	—		—		—		10,920
Mortgage-Backed Securities-Residential	—		—		12,324		—
Other	—		—		—		—
Total Purchases	$	10,179	$	—	$	22,503	$	10,920
Maturities & Calls	$	11,750	$	22,185	$	43,617	$	65,965

	Three Months Ended				Nine Months Ended
Purchases:	9/30/2017		9/30/2016		9/30/2017		9/30/2016
Held-to-Maturity Portfolio
State and Municipal Obligations	$	2,583	$	850	$	36,018	$	60,786
Mortgage-Backed Securities-Residential	—		—		—		—
Total Purchases	$	2,583	$	850	$	36,018	$	60,786
Maturities & Calls	$	8,800	$	17,699	$	39,062	$	42,295

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Asset Quality

The following table presents information related to our allowance and provision for loan losses for the past five quarters.

Summary of the Allowance and Provision for Loan Losses

(Dollars in Thousands, Loans Stated Net of Unearned Income)

	9/30/2017			6/30/2017			3/31/2017			12/31/2016			9/30/2016
Loan Balances:
Period-End Loans	$	1,908,799		$	1,878,632		$	1,810,805		$	1,753,268		$	1,707,216
Average Loans, Year-to-Date	1,839,216			1,811,998			1,781,113			1,663,225			1,641,899
Average Loans, Quarter-to-Date	1,892,766			1,842,543			1,781,113			1,726,738			1,680,850
Period-End Assets	2,744,462			2,721,721			2,656,386			2,605,242			2,580,485
Allowance for Loan Losses, Year-to-Date:
Allowance for Loan Losses, Beginning of Period	$	17,012		$	17,012		$	17,012		$	16,038		$	16,038
Provision for Loan Losses, YTD	1,580			780			358			2,033			1,550
Loans Charged-off, YTD	(1,197		)	(574		)	(270		)	(1,270		)	(784		)
Recoveries of Loans Previously Charged-off	300			224			116			211			171
Net Charge-offs, YTD	(897		)	(350		)	(154		)	(1,059		)	(613		)
Allowance for Loan Losses, End of Period	$	17,695		$	17,442		$	17,216		$	17,012		$	16,975
Allowance for Loan Losses, Quarter-to-Date:
Allowance for Loan Losses, Beginning of Period	$	17,442		$	17,216		$	17,012		$	16,975		$	16,798
Provision for Loan Losses, QTD	800			422			358			483			480
Loans Charged-off, QTD	(622		)	(305		)	(270		)	(486		)	(367		)
Recoveries of Loans Previously Charged-off	75			109			116			40			64
Net Charge-offs, QTD	(547		)	(196		)	(154		)	(446		)	(303		)
Allowance for Loan Losses, End of Period	$	17,695		$	17,442		$	17,216		$	17,012		$	16,975
Nonperforming Assets, at Period-End:
Nonaccrual Loans	$	5,482		$	5,222		$	4,273		$	4,193		$	6,107
Loans Past Due 90 or More Days and Still Accruing Interest	967			1,821			—			1,201			548
Restructured and in Compliance with   Modified Terms	828			101			101			106			107
Total Nonperforming Loans	7,277			7,144			4,374			5,500			6,762
Repossessed Assets	62			90			103			101			149
Other Real Estate Owned	1,651			1,523			1,631			1,585			868
Total Nonperforming Assets	$	8,990		$	8,757		$	6,108		$	7,186		$	7,779
Asset Quality Ratios:
Allowance to Nonperforming Loans	243.16		%	244.15		%	393.60		%	309.31		%	251.04		%
Allowance to Period-End Loans	0.93		%	0.93		%	0.95		%	0.97		%	0.99		%
Provision to Average Loans (Quarter) (1)	0.17		%	0.09		%	0.08		%	0.11		%	0.11		%
Provision to Average Loans (YTD) (1)	0.11		%	0.09		%	0.08		%	0.12		%	0.13		%
Net Charge-offs to Average Loans (Quarter) (1)	0.11		%	0.04		%	0.04		%	0.10		%	0.07		%
Net Charge-offs to Average Loans (YTD) (1)	0.07		%	0.04		%	0.04		%	0.06		%	0.05		%
Nonperforming Loans to Total Loans	0.38		%	0.38		%	0.24		%	0.31		%	0.40		%
Nonperforming Assets to Total Assets	0.33		%	0.32		%	0.23		%	0.28		%	0.30		%
(1) Annualized

Provision for Loan Losses

Through the provision for loan losses, an allowance is maintained that reflects our best estimate of probable incurred loan losses related to specifically identified impaired loans as well as the inherent risk of loss related to the remaining portfolio. Loan charge-offs are recorded to this allowance when loans are deemed uncollectible, in whole or in part. As loans become past due, consideration is given to the status of those loans and whether or not to classify them as nonaccrual loans. Any loans listed as "past due 90 or more days and still accruing interest" have been evaluated and the borrowers have been deemed to have the capacity to repay all principal and interest and, therefore, have not been classified as nonaccrual.

In the third quarter of 2017, we made a $800 thousand provision for loan losses, compared to a provision of $480 thousand for the third quarter of 2016 and a provision of $422 thousand for the second quarter of 2017. The provision was primarily driven by net charge-offs of $547 thousand, growth in outstanding loan balances, and minor changes in qualitative factors. See Note 3 to our

# 54

unaudited interim consolidated financial statements for a discussion on how we classify our credit quality indicators as well as the balance in each category.

The ratio of the allowance for loan losses to total loans was 0.93% at September 30, 2017, a decrease of 4 basis points from the 0.97% ratio at December 31, 2016 and a decrease of 6 basis points from the 0.99% ratio at September 30, 2016.

    We consider our accounting policy relating to the allowance for loan losses to be a critical accounting policy, given the uncertainty involved in evaluating the level of the allowance required to cover credit losses inherent in the loan portfolio, and the material effect that such judgments may have on our results of operations. Our process for determining the provision for loan losses is described in Note 3 to our unaudited interim consolidated financial statements.

Risk Elements

Our nonperforming assets at September 30, 2017 amounted to $9.0 million, an increase of $1.8 million, from the December 31, 2016 total and an increase of $1.2 million, from the year earlier total. In all recent periods, our ratios of nonperforming assets to total assets have remained below the average ratios for our peer group, although the average peer group ratios have improved dramatically in recent years, from post-crisis levels that were substantially higher than their current levels (and substantially higher than our ratios during such periods). (See page 37 for a discussion of our peer group.) At June 30, 2017, our ratio of loans past due 90 or more days plus nonaccrual loans plus other real estate owned to total assets was 0.32%, well below the 0.68% ratio of our peer group at such date (the latest date for which peer group information is available). At September 30, 2017 our ratio increased slightly to 0.33%, however, this is still far below the most recent ratio for our peer group.

The following table presents the balance of other non-current loans at period-end as to which interest income was being accrued (i.e. loans 30 to 89 days past due, as defined in bank regulatory guidelines). These non-current loans are not included in our nonperforming assets but entail heightened risk.

Loans Past Due 30-89 Days and Accruing Interest ($ in 000's)
	9/30/2017		12/31/2016		9/30/2016
Commercial Loans	$	122	$	134	$	105
Commercial Real Estate Loans	—		121		—
Residential Real Estate Loans	1,063		2,461		1,693
Consumer Loans - Primarily Indirect Automobile	5,615		6,369		5,144
Total Delinquent Loans	$	6,800	$	9,085	$	6,942

At September 30, 2017, our loans in this category totaled $6.8 million, a decrease of $2.3 million, or 25.1%, from the $9.1 million of such loans at December 31, 2016. The September 30, 2017 total of non-current loans equaled 0.36% of loans then outstanding, whereas the year-end 2016 total equaled 0.52% of loans then outstanding. The decrease from December 31, 2016 is primarily attributable to a decrease in delinquent automobile loans, which were at a seasonally elevated level at year-end2016but declined (improved) during the first nine months of 2017.

The number and dollar amount of our performing loans that demonstrate characteristics of potential weakness from time-to-time (potential problem loans) typically is a very small percentage of our portfolio. See the table of Credit Quality Indicators in Note 3 to our unaudited interim consolidated financial statements. We consider all performing commercial and commercial real estate loans classified as substandard or lower (as reported in Note 3) to be potential problem loans. The dollar amount of such loans at September 30, 2017 was $31.0 million, down from the dollar amount of such loans at December 31, 2016, when the amount was $35.8 million, due primarily to the upgrade of several commercial borrowers. These loans will continue to be closely monitored and we do expect to collect all payments of contractual interest and principal in full on these classified loans. Total nonperforming assets at period-end increased by $1.2 million, or 15.6% from September 30, 2016. This change resulted primarily from several commercial loans moving to nonaccrual status.

The economy in our market area has been relatively strong in recent years, compared to the immediate post-crisis years, but any general weakening of the U.S. economy in upcoming periods would likely have an adverse effect on the economy in our market area as well, and ultimately on our loan portfolio, particularly our commercial and commercial real estate portfolio.

As of September 30, 2017, we held for sale three residential real estate properties and one commercial property in other real estate owned. We do not expect to acquire a significant number of other real estate properties in the near term as a result of payment defaults or the foreclosure process.

We do not currently anticipate significant increases in our nonperforming assets, other non-current loans as to which interest income is still being accrued or potential problem loans, but can give no assurances in this regard.

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CAPITAL RESOURCES

Regulatory Capital Standards

Capital Adequacy Requirements.An important area of banking regulation is the federal banking system's promulgation and enforcement of minimum capitalization standards for banks and bank holding companies.  

The following is a summary of certain definitions of capital under the various new capital measures in the revised capital rules:

Common Equity Tier 1 Capital (CET1): Equals the sum of common stock instruments and related surplus (net of treasury stock), retained earnings, accumulated other comprehensive income (AOCI), and qualifying minority interests, minus applicable regulatory adjustments and deductions. Such deductions will include AOCI, if the organization has exercised its irrevocable option not to include AOCI in capital (we made such an election). Mortgage-servicing assets, deferred tax assets, and investments in financial institutions are limited to 15 percent of CET1 in the aggregate and 10 percent of CET1 for each such item individually.

Additional Tier 1 Capital: Equals the sum of noncumulative perpetual preferred stock, tier 1 minority interests, grandfathered TRUPs, and Troubled Asset Relief Program instruments, minus applicable regulatory adjustments and deductions.

Tier 2 Capital: Equals the sum of subordinated debt and preferred stock, total capital minority interests not included in Tier 1, and allowance for loan and lease losses (not exceeding 1.25 percent of risk-weighted assets) minus applicable regulatory adjustments and deductions.

The following table presents the current minimum regulatory capital ratios applicable to our holding company and banks under the revised capital rules (as of January 1, 2017), as well as the increased minimum capital ratios that will apply at certain dates over the remaining portion of the phase-in period (i.e., as of January 1, 2018 and January 1, 2019):

Capital Ratio	Year, as of January 1
	2017		2018		2019
Minimum CET1 Ratio	4.500	%	4.500	%	4.500	%
Capital Conservation Buffer ("Buffer")	1.250	%	1.875	%	2.500	%
Minimum CET1 Ratio Plus Buffer	5.750	%	6.375	%	7.000	%
Minimum Tier 1 Risk-Based Capital Ratio	6.000	%	6.000	%	6.000	%
Minimum Tier 1 Risk-Based Capital Ratio Plus Buffer	7.250	%	7.875	%	8.500	%
Minimum Total Risk-Based Capital Ratio	8.000	%	8.000	%	8.000	%
Minimum Total Risk-Based Capital Ratio Plus Buffer	9.250	%	9.875	%	10.500	%
Minimum Leverage Ratio	4.000	%	4.000	%	4.000	%

These minimum capital ratios, especially the CET1 ratio (4.5%) and the enhanced Tier 1 risk-based capital ratio (6.0%), represent a heightened and more restrictive capital regime than institutions like ours previously had to meet under the prior capital rules.

At September 30, 2017, our holding company and both of our banks exceeded by a substantial amount each of the applicable minimum capital ratios established under the revised capital rules, including the minimum CET1 Ratio, the minimum Tier 1 Risk-Based Capital Ratio, the minimum Total Risk-Based Capital Ratio, and the minimum Leverage Ratio, including in the case of each risk-based ratio, the phased-in portion of the capital buffer.

Prompt Corrective Action Capital Classifications. Under applicable banking law, federal banking regulators are required to take prompt corrective action with respect to depository institutions that do not meet certain minimum capital requirements.  For these purposes, the regulators have established five capital classifications for banking institutions, ranging from the highest category of "well-capitalized" to the lowest category of "critically under-capitalized". As a result of the regulators' adoption of the revised capital rules, the definitions for determining which of the five capital classifications a particular banking organization will fall into were changed, effective as of January 1, 2015. Under the revised capital classifications, a banking institution is considered "well-capitalized" if it meets the following capitalization standards on the date of measurement: a CET1 risk-based capital ratio of 6.50% or greater, a Tier 1 risk-based capital ratio of 8.00% or greater, a total risk-based capital ratio of 10.00% or greater, and a Tier 1 leverage ratio of 5.00% or greater, provided the institution is not subject to any regulatory order or written directive regarding capital maintenance. Federal banking law also ties the ability of banking organizations to engage in certain types of activities and to utilize certain procedures to such organizations' continuing to qualify for inclusion in one of the two highest ranking of these capitalization categories, i.e., as "well-capitalized" or "adequately capitalized."

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Our Current Capital Ratios:The table below sets forth the regulatory capital ratios of our holding company and our two subsidiary banks, Glens Falls National and Saratoga National, under the current capital rules, as of September 30, 2017:

	Common		Tier 1		Total
	Equity		Risk-Based		Risk-Based		Tier 1
	Tier 1 Capital		Capital		Capital		Leverage
	Ratio		Ratio		Ratio		Ratio
Arrow Financial Corporation	12.70	%	13.79	%	14.77	%	9.30	%
Glens Falls National Bank & Trust Co.	13.35	%	13.36	%	14.33	%	8.88	%
Saratoga National Bank & Trust Co.	13.20	%	13.20	%	14.15	%	9.42	%
Current Regulatory Minimum (2017)	5.750%(1)		7.250%(1)		9.250%(1)		4.000	%
FDICIA's Prompt Corrective Action - "Well-Capitalized" Standard (2017)	6.500	%	8.000	%	10.000	%	5.000	%
Final Regulatory Minimum (1/1/2019)	7.000%(2)		8.500%(2)		10.500%(2)		4.000	%
(1) Including currently phased-in 1.25% capital conservation buffer
(2) Including the fully phased-in 2.50 % capital conservation buffer

At September 30, 2017, our holding company and both banks exceeded the minimum regulatory capital ratios established under the current capital rules and each also qualified as "well-capitalized", the highest category in the new capital classification scheme established by federal bank regulatory agencies under the "prompt corrective action" standards, as described above.

Capital Components; Stock Repurchases; Dividends

Stockholders' Equity:Stockholders' equity was $244.6 million at September 30, 2017, an increase of $11.8 million, or 5.1%, from December 31, 2016.  This increase was the result of net income for the period of $21.3 million, an increase in other comprehensive income of $0.7 million, and increases in book equity from our various stock-based compensation and dividend reinvestment plans of $2.7 million. These equity enhancing developments during the quarter were offset, in part, by cash dividends of $10.1 million and purchases of our own common stock of $2.8 million.

Trust Preferred Securities: In each of 2003 and 2004, we issued $10 million of trust preferred securities (TRUPs) in a private placement. Under the Federal Reserve Board's regulatory capital rules then in effect, TRUPs proceeds typically qualified as Tier 1 capital for bank holding companies such as ours, but only in amounts up to 25% of Tier 1 capital, net of goodwill less any associated deferred tax liability. Under the Dodd-Frank Act, any trust preferred securities that Arrow might issue on or after the grandfathering date set forth in Dodd-Frank (May 19, 2010) would no longer qualify as Tier 1 capital under bank regulatory capital guidelines, whereas TRUPs outstanding prior to the grandfathering cutoff date set forth in Dodd-Frank (May 19, 2010) would continue to qualify as Tier 1 capital until maturity or redemption, subject to limitations. Thus, our outstanding TRUPs continue to qualify as Tier 1 regulatory capital, subject to such limitations.

Stock Repurchase Program: In October 2016, the Board of Directors approved a $5.0 million stock repurchase program, effective January 1, 2017 (the 2017 program), under which management is authorized, in its discretion, to repurchase from time-to-time during 2017, in the open market or in privately negotiated transactions, up to $5 million of Arrow common stock, to the extent management believes purchase of the Company's stock is an attractive use of available capital and in the best interests of stockholders. This 2017 program replaced a similar repurchase program which was in effect during 2016 (the 2016 program), which also authorized the repurchase of up to $5.0 million of Arrow common stock. As of September 30, 2017 approximately $2.1 million had been used under the 2017 program to repurchase Arrow shares. This total does not include repurchases of Arrow's Common Stock other than through its repurchase program, i.e., repurchases of Arrow shares on the market utilizing funds accumulated under Arrow's Dividend Reinvestment Plan and the surrender or deemed surrender of Arrow stock to the Company in connection with employees' stock-for-stock exercises of compensatory stock options to buy Arrow stock.

In October 2017, the Board of Directors approved a new stock repurchase program authorizing the repurchase, at the discretion of senior management, of up to $5 million of Arrow common stock over the 12-month period starting January 1, 2018, in open market or negotiated transactions. This new repurchase program will replace the existing 2017, which expires December 31, 2017 program.

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Dividends:Our common stock is traded on NasdaqGS^® under the symbol AROW. The high and low stock prices for the past seven quarters listed below represent actual sales transactions, as reported by NASDAQ. On October 25, 2017, our Board of Directors declared a 2017 fourth quarter cash dividend of $0.250 payable on December 15, 2017. Per share amounts in the following table have been restated for our September 28, 20173% stock dividend.

					Cash
	Market Price				Dividends
	Low		High		Declared
2016
First Quarter	$	23.13	$	25.96	$	0.236
Second Quarter	24.42		28.65		0.236
Third Quarter	27.79		33.08		0.236
Fourth Quarter	29.67		40.49		0.243
2017
First Quarter	$	31.80	$	39.76	$	0.243
Second Quarter	30.15		34.95		0.243
Third Quarter	29.81		35.00		0.243
Fourth Quarter (dividend payable December 15, 2017)	TBD		TBD		0.250

	Quarter Ended September 30,
	2017			2016
Cash Dividends Per Share	$	0.243		$	0.236
Diluted Earnings Per Share	0.53			0.48
Dividend Payout Ratio	45.85		%	49.17		%
Total Equity (in thousands)	244,648			$	229,208
Shares Issued and Outstanding (in thousands)	13,891			13,828
Book Value Per Share	$	17.61		$	16.58
Intangible Assets (in thousands)	24,268			24,675
Tangible Book Value Per Share	$	15.86		$	14.79

LIQUIDITY

The objective of effective liquidity management is to ensure that we have the ability to raise cash when we need it at a reasonable cost.  We must be capable of meeting expected and unexpected obligations to our customers at any time.  Given the uncertain nature of customer demands as well as the need to maximize earnings, we must have available reasonably priced sources of funds, both on- and off-balance sheet, that can be accessed quickly in time of need.

Our primary sources of available liquidity are overnight investments in federal funds sold, interest bearing bank balances at the Federal Reserve Bank, and cash flow from investment securities and loans.  Certain investment securities are selected at purchase as available-for-sale based on their marketability and collateral value, as well as their yield and maturity.  Our securities available-for-sale portfolio was $315.5 million at September 30, 2017, a decrease of $31.5 million, from the year-end 2016 level. Due to the potential for volatility in market values, we are not always able to assume that securities may be sold on short notice at their carrying value, even to provide needed liquidity.

In addition to liquidity from short-term investments, investment securities and loans, we have supplemented available operating liquidity with additional off-balance sheet sources such as federal funds lines of credit with correspondent banks and credit lines with the FHLBNY. Our federal funds lines of credit are with two correspondent banks totaling $35 million; we did not draw on these lines during the three months ended September 30, 2017.

To support our borrowing relationship with the FHLBNY, we have pledged collateral, including residential mortgage and home equity loans. At September 30, 2017, we had outstanding collateral obligations with the FHLBNY of $258 million; on such date, our unused borrowing capacity at the FHLBNY was approximately $242 million. In addition we have identified brokered certificates of deposit as an appropriate off-balance sheet source of funding accessible in a relatively short time period. Also, our two bank subsidiaries have each established a borrowing facility with the Federal Reserve Bank of New York, pledging certain consumer loans as collateral for potential "discount window" advances, which we maintain for contingency liquidity purposes. At September 30, 2017, the amount available under this facility was approximately $416 million, and there were no advances then outstanding.    

We measure and monitor our basic liquidity as a ratio of liquid assets to total short-term liabilities, both with and without the availability of borrowing arrangements. Based on the level of overnight funds investments, available liquidity from our investment securities portfolio, cash flows from our loan portfolio, our stable core deposit base and our significant borrowing capacity, we believe that our liquidity is sufficient to meet all funding needs that may arise in connection with any reasonably likely events or occurrences. At September 30, 2017, our basic liquidity ratio, including our FHLB collateralized borrowing capacity, was 11.0% of total assets, or $192 million in excess of our internally-set minimum target ratio of 4%.

Because of our consistently favorable credit quality and strong balance sheet, we did not experience any significant liquidity constraints in the three-month period ended September 30, 2017 and did not experience any such constraints in any prior year, back to and including the financial crisis years. We have not at any time during such period been forced to pay premium rates to obtain retail deposits or other funds from any source.

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RESULTS OF OPERATIONS

Three Months Ended September 30, 2017 Compared With

Three Months Ended September 30, 2016

Summary of Earnings Performance

(Dollars in Thousands, Except Per Share Amounts)

	Quarter Ended
	9/30/2017			9/30/2016			Change			% Change
Net Income	$	7,416		$	6,738		$	678		10.1	%
Diluted Earnings Per Share	0.53			0.48			0.05			10.4
Return on Average Assets	1.08		%	1.06		%	0.02		%	1.9
Return on Average Equity	12.07		%	11.75		%	0.32		%	2.7

We reported net income of $7.4 million and diluted earnings per share (EPS) of $.53 for the third quarter of 2017, compared to net income of $6.7 million and diluted EPS of $.48 for the third quarter of 2016. Return on average assets (ROA) for the third quarter of 2017 was 1.08%, up 2 basis points from 1.06% in the third quarter of 2016. In addition, our return on average equity (ROE) increased to 12.07%

for the third quarter of 2017, up 32 basis points from 11.75% in the third quarter of 2016.

The following narrative discusses the quarter-to-quarter changes in net interest income, noninterest income, noninterest expense and income taxes.

Net Interest Income

Summary of Net Interest Income

(Taxable Equivalent Basis, Dollars in Thousands)

	Quarter Ended
	9/30/2017			9/30/2016			Change			% Change
Interest and Dividend Income	$	22,565		$	20,222		$	2,343		11.6	%
Interest Expense	1,949			1,405			544			38.7	%
Net Interest Income	20,616			18,817			1,799			9.6	%
Tax-Equivalent Adjustment	966			940			26			2.8	%
Average Earning Assets (1)	2,597,277			2,399,197			198,080			8.3	%
Average Interest-Bearing Liabilities	2,012,802			1,892,583			120,219			6.4	%
Yield on Earning Assets (1)	3.45		%	3.35		%	0.10		%	3.0	%
Cost of Interest-Bearing Liabilities	0.38			0.30			0.08		%	26.7	%
Net Interest Spread	3.07			3.05			0.02		%	0.7	%
Net Interest Margin	3.15			3.12			0.03		%	1.0	%

⁽¹⁾ Includes Nonaccrual Loans

Net interest income for the just completed quarter, on a taxable equivalent basis, increased by $1.8 million, or 9.6%, from the third quarter of 2016, largely due to an increase in our average earning assets of 8.3%, as compared to the 6.4% increase in our average interest-bearing liabilities. In addition, our net interest margin increased 3 basis points in the third quarter of 2017 to 3.15%, from 3.12% during the third quarter of 2016. Due to our strong loan growth, the composition of our average earning assets during the 2017 period includes more higher yielding loans and slightly less lower yielding investment securities due to the strategy of not reinvesting a portion of the maturing securities. As a result, the yield on average earning assets increased 10 basis points in the current year period. While our growth in non-interest bearing demand deposits during the 2017 period has resulted in slowing the increase in our cost of interest-bearing liabilities, the additional 53 basis points in the cost of short-term borrowings utilized to fund our loan growth resulted in an increase in the cost of interest-bearing liabilities of 8 basis points. We define net interest margin as our net interest income on a tax-equivalent basis divided by average earning assets, annualized. Our net interest margin, as well as our tax-equivalent net income, from which the margin is derived, are non-GAAP financial measures. (See the discussion under “Use of Non-GAAP Financial Measures,” on page 38, and the tabular information and notes on pages 40 through 43, regarding our reasons for using these and other non-GAAP measures and the reconciliation thereof to comparable GAAP measures.) Further detailed information is presented above under the section entitled “Average Consolidated Balance Sheets and Net Interest Income Analysis.” The impact of recent interest rate changes on our deposit and loan portfolios are discussed above in this Report under the sections entitled “Deposit Trends” and “Loan Trends.”

As discussed previously under the heading "Asset Quality" beginning on page 54, the provision for loan losses for the third quarter of 2017 was $800 thousand, compared to a provision of $480 thousand for the 2016 quarter.

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Noninterest Income

Summary of Noninterest Income

(Dollars in Thousands)

	Quarter Ended
	9/30/2017		9/30/2016		Change			% Change
Income From Fiduciary Activities	$	2,116	$	1,923	$	193		10.0	%
Fees for Other Services to Customers	2,453		2,491		(38		)	(1.5	)%
Insurance Commissions	2,113		2,127		(14		)	(0.7	)%
Net Gain on Securities Transactions	10		—		10			—	%
Net Gain on the Sale of Loans	182		310		(128		)	(41.3	)%
Other Operating Income	267		263		4			1.5	%
Total Noninterest Income	$	7,141	$	7,114	$	27		0.4	%

Total noninterest income in the current quarter was $7.1 million, up slightly from total noninterest income for the third quarter of 2016. Fees for other services to customers, the largest segment of our noninterest income, remained consistent at $2.5 million for the third quarter of 2017, as compared to the third quarter of 2016. In addition to service charge income on deposits, this category also includes debit card interchange income, revenues related to the sale of mutual funds to our customers by third party providers, and servicing income on sold loans. Debit card usage by our customers has continued to grow in recent periods, which has generally offset the negative effect of reduced debit interchange rates. Generally, we do not believe that the limits on debit interchange fees resulting from Dodd-Frank will have a material adverse impact on our financial condition or results of operations in future periods.

Income from fiduciary activities for the third quarter of 2017increased by $193 thousand, or 10.0% over the third quarter of 2016. This growth in income from fiduciary activities can be attributed to market performance and customer account acquisition and retention strategies. Insurance commissions remained consistent at $2.1 million for the third quarter of 2017.

The $10 thousand increase in net securities gains between the periods was due to the fact that we did not sell any securities in the third quarter of 2016.

Net gain on the sale of loans in the third quarter of 2017decreased by $128 thousand from the third quarter of 2016. This decrease was a result of both a decrease in loan sale volume and a slight reduction in the premium achieved by those sales. The slight reduction in premium is consistent with our yield trend from residential real estate loans and the reduction in volume in loan sales is a reflection of our business strategy to sell fewer earning assets, in favor of retaining them in our portfolio. See page 50 for our discussion of loan sales.

Noninterest Expense

Summary of Noninterest Expense

(Dollars in Thousands)

	Quarter Ended
	9/30/2017			9/30/2016			Change			% Change
Salaries and Employee Benefits	$	9,251		$	8,693		$	558		6.4	%
Occupancy Expense of Premises, Net	1,145			1,257			(112		)	(8.9	)
Furniture and Equipment Expense	1,226			1,168			58			5.0
FDIC and FICO Assessments	225			217			8			3.7
Amortization	69			74			(5		)	(6.8	)
Other Operating Expense	3,632			3,673			(41		)	(1.1	)
Total Noninterest Expense	$	15,548		$	15,082		$	466		3.1
Efficiency Ratio	55.79		%	57.88		%	(2.09		)%	(3.6	)

Noninterest expense for the third quarter of 2017 was $15.5 million, an increase of $0.5 million, or 3.1%, from the expense for the third quarter of 2016. However, the rate of increase in expense on a year-over-year basis was less than the rate of growth in average total loans or in average total assets between the same two periods. This favorable comparison of rates of increase was reflected in our efficiency ratio, which was 55.79% for the third quarter of 2017, down 209 basis points from our ratio for the comparable 2016 quarter. The efficiency ratio (a ratio where lower is better), is a commonly used non-GAAP financial measure in the banking industry that purports to reflect an institution's operating efficiency. We calculate our efficiency ratio as the ratio of noninterest expense (excluding, under our definition, intangible asset amortization) to (i) net interest income (on a tax-equivalent basis) plus (ii) noninterest income (excluding net securities gains or losses). See the discussion on this non-GAAP measure on page 38 of this Report under the heading “Use of Non-GAAP Financial Measures” and the related tabular information and notes on pages 40 through 43 of this Report. The efficiency ratio included by the Federal Reserve Board in its "Peer Holding Company Performance Reports" excludes net securities gains or losses from the denominator (as does our calculation), but unlike our ratio does not exclude intangible asset amortization from the numerator. Our efficiency ratios in recent periods have generally compared favorably to the ratios of our peer group as disclosed in the Fed's Performance Reports (see page 37 for a discussion of our peer group). For the three-month period ended June 30, 2017 (the most recent reporting period for which peer group information is available), the peer group's efficiency ratio was 66.14%, and our ratio was 57.16% (not adjusted for the definitional difference).

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Salaries and employee benefits expense increased6.4% in the third quarter of 2017 compared to the 2016 quarter. The primary reason for the increase is increased staffing levels and normal salary increases. Employee benefit expenses increased by $184 thousand or 10.2% primarily related to increases in medical claims under our health benefit plans.

Income Taxes

Summary of Income Taxes

(Dollars in Thousands)

	Quarter Ended
	9/30/2017			9/30/2016			Change		% Change
Provision for Income Taxes	$	3,027		$	2,691		$	336	12.5	%
Effective Tax Rate	29.0		%	28.5		%	0.5		1.8

The effective tax rate did not materially change in the third quarter of 2017 compared to the 2016 quarter.

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RESULTS OF OPERATIONS

Nine Months Ended September 30, 2017 Compared With

Nine Months Ended September 30, 2016

Summary of Earnings Performance

(Dollars in Thousands, Except Per Share Amounts)

	Nine Months Ended
	9/30/2017			9/30/2016			Change			% Change
Net Income	$	21,255		$	19,934		$	1,321		6.6	%
Diluted Earnings Per Share	1.52			1.44			0.08			5.6
Return on Average Assets	1.06		%	1.07		%	(0.01		)%	(0.9	)
Return on Average Equity	11.86		%	11.93		%	(0.07		)%	(0.6	)

We reported net income of $21.3 million and diluted earnings per share (EPS) of $1.52 for the first nine months of 2017, compared to net income of $19.9 million and diluted EPS of $1.44 for the first nine months of 2016. Return on average assets (ROA) for the first nine months of 2017 was 1.06%, down slightly from 1.07% for the first nine months of 2016. In addition, our return on average equity (ROE) decreased slightly to 11.86% for the first nine months of 2017 from 11.93% for the first nine months of 2016.

    The following narrative discusses the period-to-period changes in net interest income, noninterest income, noninterest expense and income taxes.

Net Interest Income

Summary of Net Interest Income

(Taxable Equivalent Basis, Dollars in Thousands)

	Nine Months Ended
	9/30/2017			9/30/2016			Change			% Change
Interest and Dividend Income	$	65,385		$	59,925		$	5,460		9.1	%
Interest Expense	5,184			3,952			1,232			31.2	%
Net Interest Income	60,201			55,973			4,228			7.6	%
Tax-Equivalent Adjustment	2,863			2,780			83			3.0	%
Average Earning Assets (1)	2,550,076			2,368,454			181,622			7.7	%
Average Interest-Bearing Liabilities	1,998,746			1,883,717			115,029			6.1	%
Yield on Earning Assets (1)	3.43		%	3.38		%	0.05		%	1.5	%
Cost of Interest-Bearing Liabilities	0.35			0.28			0.07		%	25.0	%
Net Interest Spread	3.08			3.10			(0.02		)%	(0.6	)%
Net Interest Margin	3.16			3.16			—		%	—	%

⁽¹⁾ Includes Nonaccrual Loans

Net interest income dollars for the just completed nine-month period, on a taxable equivalent basis, increased by $4.2 million, or 7.6%, over the 2016 amount, principally due to the above mentioned positive impact of a 7.7% increase in the level of our average earning assets as compared to the 6.1% increase in average interest-bearing liabilities. For the first nine months of 2017, net interest margin was unchanged from the 3.16% for the first nine months of 2016. Due to our strong loan growth, the composition of our average earning assets during the 2017 period includes more loans earning higher yields and slightly less lower yielding investment securities, due to the strategy of not reinvesting a portion of the maturing securities. As a result, the yield on average earning assets increased 5 basis points in the current year period. Although our growth in non-interest bearing demand deposits during the 2017 period has resulted in slowing the increase in our cost of interest-bearing liabilities, the additional 43 basis points in the cost of short-term borrowings utilized to fund our loan growth resulted in an increase in the cost of interest bearing liabilities of 7 basis points. We define net interest margin as our net interest income on a tax-equivalent basis divided by average earning assets, annualized. Our net interest margin, as well as our tax-equivalent net interest income from which the margin is derived, are non-GAAP measures. (See the discussion under “Use of Non-GAAP Financial Measures,” on page 38, and the tabular information and notes on pages 40 through 43, regarding our net interest margin and tax-equivalent net interest income, which are commonly used non-GAAP financial measures.) Further detailed information is presented above under the section entitled “Average Consolidated Balance Sheets and Net Interest Income Analysis.” The impact of recent interest rate changes on our deposit and loan portfolios are discussed above in this Report under the sections entitled “Deposit Trends” and “Loan Trends.”

As discussed previously under the heading "Asset Quality" beginning on page 54, the provision for loan losses for the first nine months of 2017 was $1.58 million, compared to a provision of $1.55 million for the 2016 period.

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Noninterest Income

Summary of Noninterest Income

(Dollars in Thousands)

	Nine Months Ended
	9/30/2017		9/30/2016		Change			% Change
Income From Fiduciary Activities	$	6,284	$	5,854	$	430		7.3	%
Fees for Other Services to Customers	7,122		7,144		(22		)	(0.3	)
Insurance Commissions	6,426		6,468		(42		)	(0.6	)
Net Gain on Securities Transactions	10		144		(134		)	(93.1	)
Net Gain on the Sale of Loans	431		649		(218		)	(33.6	)
Other Operating Income	620		925		(305		)	(33.0	)
Total Noninterest Income	$	20,893	$	21,184	$	(291	)	(1.4	)

Total noninterest income in the first nine months of 2017 was $20.9 million, a small decrease of $291 thousand, or 1.4%, from total noninterest income of $21.2 million for the first nine months of 2016. Fees for other services to customers, the largest segment of our noninterest income, remained consistent at $7.1 million for the first nine months of 2017, as compared to the first nine months of 2016.

Income from fiduciary activities for the first nine months of 2017increased by $430 thousand, or 7.3% over the first nine months of 2016. This growth in income from fiduciary activities can be attributed to market performance and customer account acquisition and retention strategies. Insurance commissions remained materially consistent at $6.4 million for the first nine months of 2017, as compared to the first nine months of 2016.

Net securities gains between the periods decreased$134 thousand due to the opportunities available to reposition our available-for-sale securities portfolio during the 2016 period that were not available during the 2017 period. See our discussion on our investment securities portfolio beginning on page 53 of this Report. The decrease in other operating income between the periods was due to the fact that we recognized significant income in the 2016 period from our investment in regional business incubation enterprises (limited partnerships), which was not recognized by us in the 2017 period.

Net gain on the sale of loans in the first nine months of 2017decreased by $218 thousand, or 33.6% from the first nine months of 2016. This decrease was a result of both lower loan sale volume and a slight reduction in the average premium achieved by those sales. The slight reduction in premium is consistent with our yield trend from residential real estate loans (i.e.: yields were not dropping as fast during this period) and the reduction in volume in loan sales is a reflection of our business strategy to sell fewer earning assets, in favor of retaining them in our portfolio. See page 50 for our discussion of loan sales.

Noninterest Expense

Summary of Noninterest Expense

(Dollars in Thousands)

	Nine Months Ended
	9/30/2017			9/30/2016			Change			% Change
Salaries and Employee Benefits	$	27,343		$	25,223		$	2,120		8.4	%
Occupancy Expense of Premises, Net	3,761			3,819			(58		)	(1.5	)
Furniture and Equipment Expense	3,649			3,404			245			7.2
FDIC and FICO Assessments	679			844			(165		)	(19.5	)
Amortization	210			223			(13		)	(5.8	)
Other Operating Expense	11,019			10,824			195			1.8
Total Noninterest Expense	$	46,661		$	44,337		$	2,324		5.2
Efficiency Ratio	57.29		%	57.28		%	0.01		%	—

Noninterest expense for the first nine months of 2017 was $46.7 million, an increase of $2.3 million, or 5.2%, from the expense for the first nine months of 2016. This increase on a year-over-year basis represents less than the growth in average total loans or in average total assets between the same two periods. Our efficiency ratio was 57.29% for the first nine months of 2017, up by 1 basis point (a slight drop in efficiency) from our ratio for the comparable 2016 period. This ratio (a ratio where lower is better), is a commonly used non-GAAP financial measure in the banking industry that purports to reflect operating efficiency. We calculate our efficiency ratio as the ratio of noninterest expense (excluding, under our definition, intangible asset amortization) to (i) net interest income (on a tax-equivalent basis) plus (ii) noninterest income (excluding net securities gains or losses). See the discussion on this non-GAAP measure on page 38 of this Report under the heading “Use of Non-GAAP Financial Measures” and the related tabular information and notes on pages 40 through 43 of this Report.

Salaries and employee benefits expense increased8.4% in the first nine months of 2017 over the 2016 period, reflecting an increase of 7.1% in salaries and an increase of 12.1% in benefits. The increase in salary expense was due in part to staffing expansion and normal merit increases. The increase in our benefit expenses was primarily due to medical claims incurred under the company's minimum premium health insurance plan during the 2017 period.

# 63

FDIC and FICO assessments decreased by $165 thousand for the first nine months of 2017, as compared to the first nine months of 2016. This decrease is primarily the result of a reduction in the requirements for community banks of our size and a repositioning of our balance sheet components on which the assessment is based.

Income Taxes

Summary of Income Taxes

(Dollars in Thousands)

	Nine Months Ended
	9/30/2017			9/30/2016			Change			% Change
Provision for Income Taxes	$	8,735		$	8,556		$	179		2.1	%
Effective Tax Rate	29.1		%	30.0		%	(0.9		)	(3.0	)

The decrease in the effective tax rate in the first nine months of 2017 over the first nine months of 2016, was primarily attributable to a change in state tax law that reduced our state tax expense combined with the impact of the adoption of new guidance on the accounting for share-based payment transactions. The new guidance resulted in excess tax benefits from these transactions to be recorded as a reduction in the provision for income taxes.

# 64

Item 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

In addition to credit risk in our loan portfolio and liquidity risk, discussed on page 58 of this Report, we have market risk in our business activities. Market risk is the possibility that changes in future market rates (interest rates) or prices (market value of our financial instruments) will make our position less valuable. The ongoing monitoring and management of market risk, principally interest rate risk, is an important component of our asset/liability management process, which is governed by policies that are reviewed and approved annually by the Board of Directors. The Board of Directors delegates responsibility for carrying out asset/liability oversight and control to management’s Asset/Liability Committee (“ALCO”). In this capacity, ALCO develops guidelines and strategies impacting our asset/liability profile based upon estimated market risk sensitivity, policy limits and overall market interest rate levels and trends. As of the date of this Report, we are not using, and have not in recent periods used, derivatives, such as interest rate swaps, in our risk management process.

Interest rate risk is the exposure of our net interest income to changes in interest rates. Interest rate risk is directly related to the different maturities and repricing characteristics of interest-bearing assets and liabilities, as well as to the risk of prepayment of loans and early withdrawal of time deposits, and the fact that the speed and magnitude of responses to interest rate changes vary by product.

The ALCO utilizes the results of a detailed and dynamic simulation model to quantify the estimated exposure of net interest income to sustained interest rate changes. While ALCO routinely monitors simulated net interest income sensitivity over a rolling two-year horizon, it also utilizes additional tools to monitor potential longer-term interest rate risk.

Our current simulation model captures the impact of changing interest rates on the interest income received and interest expense paid on all interest rate-sensitive assets and liabilities reflected on our consolidated balance sheet. This sensitivity analysis is compared to pre-established ALCO policy limits which specify a maximum tolerance level for net interest income exposure over a one year horizon. Our current sensitivity analysis model examines both a hypothetical upward shift of interest rates (currently, 200 basis points) and a hypothetical downward shift in interest rates (currently, 100 basis points, subject to certain zero rate limitations), and assumes (i) no balance sheet growth and (ii) a repricing of interest-bearing assets and liabilities at their earliest reasonably predictable repricing dates following the shift. For repricing purposes, we normally assume a parallel and pro-rata shift in rates for both assets and liabilities, over a 12 month period.

We occasionally need to make ad hoc adjustments to our model. During recent years, the Federal Reserve's targeted federal funds rate has remained at historically low levels. From 2010-2015 it was within a range of 0 to .50%; since then, the range has increased by 75 basis points to a range of 1.00% to 1.25%, but remains very low. The low prevailing short-term rate environment has led us to revise our standard model for the decreasing interest rate simulation for short-term liabilities and assets. Under our revised model, we have continued to apply our usual 100 basis point downward shift in interest rates for liabilities and assets on the long end of the yield curve, but we have begun to assume, for purposes of modeling our short-term liabilities and assets bearing interest rates of less than 1.00%, a hypothetical downward shift of less that the normal rate utilized (i.e., less than 100 basis points) and in some cases have made no downward shift at all in the modeled interest rates if such rates only slightly exceed zero at the measurement date. As under our old model, we continue to assume that hypothetical interest rate shifts, upward or downward, affect assets and liabilities simultaneously, depending solely upon the contractual maturities of the particular assets and liabilities in question.

Applying the revised simulation model analysis as of September 30, 2017, a 200 basis point increase in all interest rates demonstrated a 2.8% decrease in net interest income over the ensuing 12 month period, and a 100 basis point decrease (adjusted, as described above) demonstrated a 0.5% increase in net interest income, when compared with our base projection. These amounts were well within our ALCO policy limits. The preceding sensitivity analysis does not represent a forecast on our part and should not be relied upon as being indicative of expected operating results in the event of actual rate changes.

The hypothetical estimates underlying the sensitivity analysis are based upon numerous assumptions including: the nature and timing of changes in interest rates including yield curve shape, prepayments on loans and securities, deposit decay rates, pricing decisions on loans and deposits, reinvestment/replacement of asset and liability cash flows, and others. While assumptions are developed based upon current economic and local market conditions, we cannot make any assurance as to the predictive nature of these assumptions including how customer preferences or competitor influences might change.

Also, as market conditions vary from those assumed in the sensitivity analysis, actual results may differ due to: prepayment/refinancing levels deviating from those assumed, the varying impact of interest rate changes on caps or floors on adjustable rate assets, the potential effect of changing debt service levels on customers with adjustable rate loans, depositor early withdrawals and product preference changes, unanticipated shifts in the yield curve, including a so-called "flattening" or even a possible "inversion" of the yield curve, and other internal/external variables. Furthermore, the sensitivity analysis does not reflect balance sheet growth or actions that ALCO might take in responding to or anticipating changes in interest rates.

In general, we expect that our interest-bearing liabilities, which are primarily deposit liabilities, many of them having no minimum contractual term and bearing a very low interest rate, will likely reprice upward. In many cases, these deposit liabilities will reprice upward more rapidly than our short-term assets, if and as prevailing rates begin to rise, which may have a negative short-term impact on our net interest margin and net interest income, beyond that reported in the simulation analysis, above. However, many of our interest-earning assets also have relatively short maturities such that, following a rise in rates, they too will likely commence to reprice upward, relatively quickly, which will then have an offsetting positive impact on net interest income in ensuing periods.

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Item 4.

CONTROLS AND PROCEDURES

Senior management, including the Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation of Arrow's disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended) as of September 30, 2017. Based upon that evaluation, senior management, including the Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures were effective. Further, there were no changes made in our internal control over financial reporting that occurred during the most recent fiscal quarter that had materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

# 66

PART II - OTHER INFORMATION

Item 1.

Legal Proceedings

The Company, including its subsidiary banks, are not currently the subject of any material pending legal proceedings, other than ordinary routine litigation occurring in the normal course of their business. On an ongoing basis, we are often the subject of, or a party to, various legal claims by other parties against us, by us against other parties, or involving us, which arise in the normal course of business. The various pending legal claims against us will not, in the opinion of management based upon consultation with counsel, result in any material liability.

Item 1.A.

Risk Factors

We believe that the Risk Factors identified in our Annual Report on Form 10-K for the year ended December 31, 2016, continue to represent the most significant risks to our future results of operations and financial conditions, without modification or amendment. Please refer to such Risk Factors as listed in Part I, Item 1A, of our Annual Report on Form 10-K for the fiscal year ended December 31, 2016.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

Unregistered Sales of Equity Securities

There were no unregistered sales of the Company's equity securities by or on behalf of the Company during the just-completed quarter.

Issuer Purchases of Equity Securities

The following table presents information about purchases by Arrow of its common stock during the quarter ended September 30, 2017:

Third Quarter 2017 Calendar Month	(A) Total Number of Shares Purchased 1	(B) Average Price Paid Per Share 1		(C) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs 2	(D) Maximum Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs 3
July	8,138	$	31.28	6,180	$	3,502,520
August	22,678	31.34		20,600	2,856,516
September	14,456	31.88		—	2,856,516
Total	45,272	31.50		26,780

¹ The total number of shares of Common Stock purchased by the Company in each month in the quarter and the average price paid per share are listed in columns A and B, respectively. All shares identified in column A were either (i) shares purchased in open market transactions under the Arrow Financial Corporation Automatic Dividend Reinvestment Plan (DRIP) on behalf of participating stockholders, under the general supervision of the Board as administrator, (ii) shares surrendered (or deemed surrendered) to Arrow by holders of Arrow stock options in connection with such holders' stock-for-stock exercises of such options. and (iii) shares repurchased under the publicly announced Repurchase Program. Specifically, in the months indicated, the total number of shares identified in column A includes shares purchased on the open market on behalf of DRIP participants as well as shares delivered to (or deemed delivered) by option holders in connection with stock-for-stock exercises of their options, as follows: in July, DRIP purchases (1,958 shares), stock option exercises (6,180 shares), and repurchased under the publicly-announced Repurchase Program (6,180 shares); in August, DRIP purchases (2,078 shares), stock option exercises (20,600 shares), and repurchased under the publicly-announced Repurchase Program (20,600 shares); and in September, DRIP purchases (14,098 shares), and stock option exercises (358 shares).

² Represents total number of shares repurchased by the Company during the quarter under the publicly-announced 2017 Repurchase Program (i.e., the $5 million stock repurchase program authorized by the Board of Directors in October 2016 and effective January 1, 2017).

³ Represents the maximum dollar amount of repurchase authority remaining at each month-end during the quarter under the 2017 Repurchase Program.

Item 3.

Defaults Upon Senior Securities - None

Item 4.

Mine Safety Disclosures - None

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Item 5.

Other Information

Separation Agreement

As previously disclosed in Current Reports on Form 8-K filed with the Securities and Exchange Commission February 7, 2017 and August 16, 2017, Terry R. Goodemote, then Executive Vice President, Treasurer and Chief Financial Officer of Arrow Financial Corporation (the “Company”), announced his intention to retire from all positions he held as an officer of the Company and its subsidiaries upon the hiring of his successor, Edward J. Campanella, which became effective September 5, 2017. In connection with Mr. Goodemote’s departure, on November 1, 2017, the Company and Mr. Goodemote  signed an Executive Separation Agreement and Release (the “Separation Agreement”).  The Separation Agreement is subject to revocation on the part of Mr. Goodemote no later than November 8, 2017.

Pursuant to the Separation Agreement, the Company will pay Mr. Goodemote a separation payment of $260,000 in installments over the 2018 calendar year. He will also be eligible to receive certain additional benefits, including, among other things, (1) continued medical, dental and life insurance contributions; (2) benefits under the Company’s retirement plans as set forth by the terms of the applicable plans; (3) any award to be paid according to the Company’s short-term incentive plan, pro-rated for the term of his service as an officer during 2017; and (4) continued rights of indemnification and directors and officers liability insurance with respect to the period of his service as an officer of the Company.  Treatment of any outstanding equity awards held by Mr. Goodemote on his last day of employment with the Company will be governed by the applicable award agreement and underlying long-term incentive plan.  Additionally, Mr. Goodemote will continue to be employed as a non-officer employee of the Company through December 31, 2017, unless earlier terminated by the Company for cause, to assist in an advisory capacity with the transition to his successor.

The benefits specified in the Separation Agreement, including the separation payment, will be provided by the Company in consideration of and contingent upon compliance with certain releases, representations, warranties, covenants and agreements made by Mr. Goodemote, including, but not limited to, covenants of confidentiality and non-solicitation. Pursuant to the Separation Agreement, the Company waived its rights to enforce a non-competition covenant set forth in the Employment Agreement dated January 27, 2016 by and among Mr. Goodemote, the Company and its wholly owned subsidiary, Glens Falls National Bank and Trust Company.

The foregoing description of the Separation Agreement is qualified in its entirety by reference to the complete text of the Separation Agreement, a copy of which is attached as Exhibit 10.1 hereto and is incorporated herein by reference.

Item 6.

Exhibits

Exhibit Number	Exhibit
10.1	Executive Separation Agreement and Release between the Company and Terry R. Goodemote signed November 1, 2017*
15	Awareness Letter
31.1	Certification of Chief Executive Officer under SEC Rule 13a-14(a)/15d-14(a)
31.2	Certification of Chief Financial Officer under SEC Rule 13a-14(a)/15d-14(a)
32	Certification of Chief Executive Officer under 18 U.S.C. Section 1350 and Certification of Chief Financial Officer under 18 U.S.C. Section 1350
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Labels Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document
* Management contracts or compensation plans required to be filed as an exhibit.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.

ARROW FINANCIAL CORPORATION

Registrant

November 7, 2017	/s/Thomas J. Murphy
Date	Thomas J. Murphy, President and
	Chief Executive Officer
November 7, 2017	/s/Edward J. Campanella
Date	Edward J. Campanella, Senior Vice President,
	Treasurer and Chief Financial Officer
	(Principal Financial Officer and
	Principal Accounting Officer)

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EX-10.1

EXECUTIVE SEPARATION AGREEMENT AND RELEASE

THIS EXECUTIVE SEPARATION AGREEMENT AND RELEASE (this “Agreement”), by and between Arrow Financial Corporation, a New York corporation and its subsidiaries (together with its subsidiaries, “Employer”), and Terry R. Goodemote (“Executive”), is entered into and effective as of this 17 day of October, 2017.

Preliminary Statement

A. Executive has resigned his director and officer positions with Employer with such resignation and the termination of Executive from such director and officer positions effective as of September 4, 2017 (the “Resignation Effective Date”) and has irrevocably resigned his employment with Employer as of the Last Day of Employment (defined below), and these resignations have been accepted.

B. Executive will continue to be employed as a non-officer employee of Employer through the close of business on December 31, 2017 (the  “Last Day of Employment”) on the terms described below, and has voluntarily and irrevocably resigned his employment with Employer as of the Last Day of Employment, at which time and upon which date, Executive’s employment with Employer will terminate, and these resignations have been accepted.

C. Without any admission or concern as to fault, liability or wrongdoing, to ensure an effective, amicable and smooth transition in leadership, and to avoid the time, distractions and resource expenditures potentially associated with Executive’s departure, Employer and Executive desire to resolve all matters relating to or arising out of Executive’s employment by Employer and Executive’s resignation of his director and officer positions and the termination of Executive’s employment with Employer on the terms described herein.

D. Executive has been (and hereby is) advised in writing to consult with an attorney prior to finally accepting this Agreement.

NOW, THEREFORE, in consideration of the mutual agreements and promises contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

1. Resignation by Executive from all Director and Officer Positions; Termination of Executive’s Employment.

(a) Resignation from all Director and Officer Positions. Executive has voluntarily resigned from his director and officer positions with Employer effective as of the Resignation Effective Date. These resignations are accepted. Any and all right or authority of Executive to act as an agent of Employer, in any manner whatsoever, is terminated as of the Resignation Effective Date.

(b) Resignation of Employment with Employer. Executive likewise hereby voluntarily and irrevocably resigns his employment with Employer effective as of the Last Day of Employment, and will be employed by Employer during the period from the date of this Agreement until the Last Day of Employment on the terms described herein. This resignation is accepted. The employment of Executive by Employer, in any capacity whatsoever, will terminate and cease as of the Last Day of Employment.

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(c) Advisory Period. Executive shall be employed by Employer as an employee advisor during a period beginning with the Resignation Effective Date and ending on the Last Day of Employment (the “Advisory Period”), reporting to the Chief Financial Officer; provided, however, that Employer shall have the right to terminate the Executive for (i) any willful misconduct by the Executive which is materially injurious to the Employer or its subsidiaries, monetarily or otherwise, (ii) any willful failure by the Executive to follow the reasonable directions of the Chief Financial Officer, (iii) any failure by the Executive substantially to perform any reasonable directions of the Chief Executive Officer (other than failure resulting from disability or death), within ten (10) days after delivery to the Executive by the Employer of a written demand for substantial performance, which written demand shall specifically identify the manner in which the Employer believes that the Executive has not substantially performed, or (iv) intentionally providing false or misleading information to, or otherwise misleading, the Chief Financial Officer. Executive’s principal duties during the Advisory Period shall include the transition of all finance, treasury, controller, reporting and audit functions.. During the Advisory Period, Executive shall be paid on a salaried basis at an annual rate of $240,000, subject to applicable withholding, payable in equal bi-weekly installments or at such other intervals as is consistent with the regular payroll practice of Employer.

2. Separation Benefits. In consideration for the representations, warranties, covenants and agreements made by Executive and contained in this Agreement and conditional upon the terms of this Agreement. Employer will pay Executive an aggregate of $260,000 during the 2018 calendar year, subject to applicable withholding; payable in equal bi-weekly installments or at such other intervals as is consistent with the regular payroll practice of Employer (the “Separation Payment”) and subject to the condition that within 21 days after the Last Day of Employment, Executive signs and delivers a completed Schedule I and does not revoke his acceptance of the same within 7 days after returning the completed Schedule I. Said salary payments will commence as soon as administratively practicable in 2018 after such conditions are satisfied.

Executive shall continue to accrue vacation time in accordance with Employer’s vacation policies through the Last Day of Employment. Executive shall continue to receive medical and dental benefits at the current participation level in accordance with Employer’s then current policies (including cost sharing) until the earlier of (i) December 31, 2018 or (ii) the date on which Executive is first entitled to receive medical and dental coverage from another employer. Executive’s life and disability insurance coverage shall terminate on the Last Day of Employment. Beginning on January 1, 2019, Executive shall be provided with medical, dental and life insurance contributions consistent with the policy set forth on Schedule IIhereof. Solely for purposes of the policy set forth on Schedule II, Executive shall be treated as an employee who had 25 years of service and retired at age 55. The benefits Executive shall be eligible to receive under Employer’s qualified retirement plan, defined retirement pension plan, deferred compensation plan, non-qualified supplemental executive retirement plan and/or employee stock ownership plan shall be determined in accordance with the terms of the applicable plan. Executive shall be eligible for any award to be paid according to the terms of the Employer’s short-term incentive plan (“STIP”) for his service as an executive officer of Employer in 2017 (i.e., through September 4, 2017), such payment subject to the sole and absolute discretion of the Compensation Committee of the Board of Directors of Arrow Financial Corporation, to be paid in the first quarter of 2018 consistent with other STIP payments to be paid by Employer. Participation in all qualified and unqualified benefit plans shall terminate on the Last Day of Employment.

All payments and benefits provided to Executive by Employer under this Agreement, including the Separation Payment, are (i) conditional upon Executive’s continued compliance with all provisions of this Agreement, including without limitations the covenants set forth in Sections 6, 7 and 8 hereof, and (ii) subject to any applicable clawback or recoupment policies required by applicable law or policy of Employer. Whether or not Executive signs this Agreement, he will receive wages or other compensation for all time worked through

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the Last Day of Employment, accrued vacation, and any other accrued leave time which Executive is entitled to under applicable law, through the Last Day of Employment, subject to any applicable clawback or recoupment policies required by applicable law or policy of Employer. Except as provided in this Agreement, no payment, compensation, leave time, insurance or other benefits, will be furnished or paid to Executive. Executive acknowledges that Employer may change payroll dates, schedules or amounts, insurance carriers or benefit plans or otherwise modify its payroll or benefit plans for its active executives, and those changes will be applied to Executive as well where applicable.

Executive agrees that all business expenses for which Executive is entitled to reimbursement consistent with Employer’s policies will be documented and submitted for approval on a timely basis and any final expenses will be submitted within ten (10) days of the Last Day of Employment.

Executive shall continue to be entitled to all rights of indemnification and directors and officers liability insurance with respect to the period of his service as a director or officer of Employer, consistent with Employer’s governing documents and applicable New York law, to the same extent as other directors and officers of Employer.

3. Treatment of Outstanding Equity Awards. Executive has outstanding vested and unvested stock options. Executive’s vested stock options shall be exercisable in accordance with the terms of the applicable award agreement and Employer’s 1998 Long-Term Incentive Plan, the 2008 Long-Term Incentive Plan and the 2013 Long-Term Incentive Plan, as applicable, which may provide for a stated exercise period upon termination of employment including, possibly, a stated exercise period upon “early retirement,” (as defined under the principal retirement plan of Arrow Financial Corporation). His unvested stock options shall be forfeited immediately following the Last Day of Employment, consistent with the terms of the applicable award agreement and underlying plan document.

4. Prior Agreements Superseded; Representations and Releases.

(a) Prior Agreements, Practices, Policies, Procedures and Plans Superseded. In consideration of the Separation Payment and other benefits accruing to Executive hereunder, and subject to Section 11 hereof, except as is contemplated by Section 6(f), Executive agrees that the Employment Agreement dated January 27, 2016 by and among Executive, Arrow Financial Corporation and its wholly owned subsidiary, Glens Falls National Bank and Trust Company, and any other agreement between Employer and Executive with respect to severance or separation payments, is terminated as of the date hereof and any such agreement or any other severance practice, program, policy, procedure, arrangement or plan (except as explicitly set forth herein) of Employer is superseded in its entirety by the terms of this Agreement in all respects. Executive will have no further rights, and Employer will have no further obligations, under any such agreement, practice, program, policy, procedure, arrangement or plan (except as explicitly set forth herein). For the avoidance of doubt, nothing in this Agreement is intended to or in effect terminates any agreements of Executive pertaining to intellectual property, inventions, confidentiality or non-solicitation.

(b) Representations. Executive represents and warrants to Employer that (i) Executive (A) has not filed any suit, action, claim, allegation or other proceeding at law or in equity, before any court, governmental agency, arbitration panel or other forum of any nature (an “Action”) with respect to the matters released in Section 4(c) below and (B) will not prosecute, and will immediately dismiss with prejudice, any pending Action with respect to the matters released in Section 4(c) below; (ii) Executive has not assigned to any other person or entity any right(s) or claim(s) Executive may have against Employer; (iii) in deciding to execute this Agreement (A) no fact, evidence, event or

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transaction currently unknown to Executive, but which may hereinafter become known to Executive, shall affect in any way or any manner the final or unconditional nature of this Agreement; (B) Executive’s execution of this Agreement is a knowing and voluntary act on Executive’s part; (C) Executive has read and fully understands the terms of this Agreement, including the final and binding nature and effect of Executive’s waiver of rights by execution of this Agreement and has been advised (and hereby is advised) in writing to consult with an attorney before signing the Agreement at the time Executive first received this Agreement; (D) Executive has been provided with a reasonable and adequate period of time to consider this Agreement and consult with his attorneys and advisors concerning this Agreement before signing it; and (E) Executive has not been promised anything or provided any consideration for entering into this Agreement that is not specified in this Agreement. In addition, Executive hereby represents and warrants to Employer that, he has disclosed to the Chairman of the Arrow Financial Corporation Board of Directors, on or prior to the date hereof and will disclose, on or prior to the Last Day of Employment, any material violation of federal, state, foreign or local criminal law or regulation that is applicable to Employer, any threatened or pending federal, state, foreign or local governmental criminal investigation against Employer and any practice or policy of Employer that may be unlawful under applicable federal, state, foreign or local criminal law. Further, Executive represents and warrants to Employer that the facts relating to Executive contained in the Preliminary Statement are true and correct.

(c)Waiver and Release.

(1) Executive hereby releases, gives up and waives any and all known and unknown rights, causes of action, lawsuits and claims for liability Executive may now or in the future have against any of the Employer Parties (defined below) in any way arising out of, based upon or relating to (i) Executive’s employment with Employer or the termination of or resignation from such employment, (ii) any promise, policy, practice, agreement, action or conduct of any of the Employer Parties to date, or (iii) any fact occurring prior to this date. Executive acknowledges that this means that, among other claims, he is releasing the Employer Parties from and may not bring claims against any of them under (i) Title VII of the Civil Rights Act of 1964 or Sections 1981 and 1983 of the Civil Rights Act of 1866, which prohibit discrimination based on race, color, national origin, ancestry, religion, or sex; (ii) the Age Discrimination in Employment Act, which prohibits discrimination based on age; (iii) the Equal Pay Act, which prohibits paying men and women unequal pay for equal work; (iv) the Americans with Disabilities Act and Sections 503 and 504 of the Rehabilitation Act of 1973, which prohibit discrimination based on disability; (v) the WARN Act, which requires that advance notice be given of certain workforce reductions; (vi) the Employee Retirement Income Security Act, which among other things, protects employee benefits; (vii) the Family and Medical Leave Act of 1993, which requires employers to provide leaves of absence under certain circumstances; (viii) the Sarbanes-Oxley Act of 2002, which, among other things, provides “whistleblower” protection; (ix) the National Labor Relations Act, the New York State Human Rights Law, the New York State Labor Law (including but not limited to the New York State Worker Adjustment and Retraining Notification Act, all provisions prohibiting discrimination and retaliation, and all provisions regulating wage and hour law), the New York State Corrections Law, the New York State Civil Rights Law, Section 125 of the New York Workers' Compensation Law, and the New York City Human Rights Law, all as amended and including all of their respective implementing regulations, (x) any applicable federal, state or local law prohibiting any form of discrimination or retaliation; (xi) any law prohibiting retaliation based on exercise by Executive of rights under any law, providing “whistleblower” protection, providing workers’ compensation benefits, protecting union activity, mandating leaves of absence, prohibiting discrimination based on veteran status

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or military service, restricting an employer’s right to terminate employees or otherwise regulating employment, or (xii) any law or decision enforcing express or implied employment contracts, requiring an employer to deal with employees fairly or in good faith, providing recourse for alleged wrongful discharge, tort, physical or personal injury, emotional distress, fraud, negligent misrepresentation, invasion of privacy, defamation, and similar or related claims, and any other law or decision relating to salary, commission, compensation, benefits, and other matters. Except to the extent specifically provided elsewhere in this Agreement, Executive further hereby releases, gives up and waives any and all rights and claims he had, has or will have to any bonus or payment under any bonus or incentive plan or program of Employer. Executive specifically represents that he has not been treated adversely on account of age or gender, or in retaliation for exercising any legal rights or reporting any alleged violation of law, nor has he otherwise been treated wrongfully in connection with his employment with Employer or his separation from employment and that he has no claim under the Age Discrimination in Employment Act, or any other federal, state or local law, decision, order or regulation concerning discrimination or retaliation. Except to the extent specifically provided elsewhere in this Agreement, Executive is not eligible for severance under any agreement, practice, program, policy, procedure, arrangement or plan of Employer and Executive specifically waives any right he may have to receive benefits under any such agreement, practice, program, policy, procedure, arrangement or plan. Executive acknowledges that Employer relied on the representations, warranties and agreements in this Agreement in agreeing to pay Executive the amounts and provide the benefits described in Section 2. Executive understands that he is releasing claims for events that have occurred prior to his signing this Agreement that he may not know about. Notwithstanding anything contained herein to the contrary, this release does not include (and Executive does not release) claims arising after the date Executive signs this Agreement, claims for vested benefits under any Employer benefit plan based upon Executive’s service until and ending on the Last Day of Employment, any claim for breach of this Agreement or any equity award agreement, or any pending claims for workers compensation that have already been filed or for on-the-job injuries that have already been reported. In addition, Executive understands that by signing this Agreement Executive waives and gives up, among other claims, the right to file a lawsuit seeking monetary damages from the Employer Parties for discrimination claims, but that this Agreement and release does not prohibit Executive from making an administrative complaint of employment discrimination against any of the Employer Parties with a governing federal, state or local agency.

For the purposes of this Agreement, the term “Employer Parties” means (i) Arrow Financial Corporation and any of its present or former direct or indirect subsidiaries, affiliates, and any joint venture or other entity in which Employer or any such entity has any ownership interest; (ii) any employee benefit plans or trusts sponsored, established or maintained by Employer or any other entity described in (i) above; (iii) the present and former directors, officers, employees, agents, administrators, trustees and fiduciaries of each entity described in (i) or (ii) above; and (iv) the respective insurers, successors and assigns of each person or entity described in (i), (ii) or (iii) above.

(2) Employer hereby releases, gives up and waives any and all known and unknown rights, causes of action, lawsuits and claims for liability Employer may now or in the future have against Executive in any way arising out of, based upon or relating to (i) Executive’s employment with Employer or the termination of or resignation from such employment, (ii) any promise, policy, agreement, action or conduct of Executive to date, or (iii) any fact occurring prior to this date, except for rights, claims, causes of action and claims for liability against Executive in any way based on any violation by Executive of the Employer’s Code of Conduct, any criminal conduct

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by Executive, any knowing or intentional violation of law by Executive, or any fraud or breach of fiduciary duty by Executive (“Retained Claims”). Notwithstanding anything contained herein to the contrary, this release does not include (and Employer does not release) any Retained Claims, any claim for breach of this Agreement or any confidentiality or non-solicitation agreement signed by Executive, or any claims arising after this date.

(d) Nature of Release. It is expressly understood and agreed that this Agreement is intended to cover and does cover not only all known losses and damages but any future losses and damages not now known or anticipated but which may later develop or be discovered, including the effects and consequences thereof. It is further expressly understood and agreed that this Agreement may be pleaded as a counterclaim to or as a defense in bar or abatement of any action taken by or on behalf of either Employer or Executive. Executive agrees that neither this Agreement nor performance hereunder constitutes or should be construed as an admission by any of the Employer Parties of any fault, liability, wrongdoing, or violation of any Employer policy, any federal, state, foreign or local law or regulation, common law, or any breach of any contract or any other wrongdoing of any type, all of which are expressly denied by Employer. Likewise, Employer agrees that neither this Agreement nor performance hereunder constitutes or should be construed as an admission by Executive of any fault, liability, wrongdoing, or violation of any Employer policy, any federal, state, foreign or local law or regulation, common law, or any breach of any contract or any other wrongdoing of any type, all of which are expressly denied by Executive.

5. Covenant Not To Sue; Indemnification. Executive and Employer each agree not to enter into any suit, action or other proceeding at law or in equity (including administrative actions), or to prosecute further any existing suit or action that might presently exist, or to make any claim or demand of any kind or nature against any of the Employer Parties or Executive (as the case may be), in any such case asserting any claim released by Executive or Employer (as the case may be) by Section 4(c)(1) and (2) of this Agreement. If Employer or Executive enters into any such suit, action or other proceeding in violation of this Section 5, the party who does so shall (i) indemnify, defend and hold the other (which, in the case of Employer shall include all the Employer Parties) harmless from and against any and all liabilities, obligations, losses, damages, penalties, claims, action, suits, costs, expenses and disbursements (including attorneys’ fees and expenses and court costs whether or not litigation is commenced and, if litigation is commenced, during all trial and appellate phases of such litigation) of any kind and nature whatsoever which may be imposed on, incurred by or asserted against any such person in any way relating to, arising out of, connected with or resulting from such actions, including any of the matters released hereunder and (ii) in the case of Executive, immediately return the Separation Payment to Employer.

Notwithstanding the foregoing, nothing contained herein shall prevent Executive from filing an administrative charge of discrimination with the Equal Employment Opportunity Commission (“EEOC”) or any state or local fair employment practices (“FEP”) agency. Executive agrees, however, that he shall not seek, accept, or be entitled to any monetary relief, whether for himself individually or as a member of a class or group, arising from an EEOC or FEP agency charge filed by Executive or on his behalf. No federal, state or local government agency is a party to this Agreement and none of the provisions of this Agreement restrict or in any way affect a government agency’s authority to investigate or seek relief in connection with any of the released claims. However, if a government agency were to pursue any matters falling within the release of claims, which it is free to do, Executive and Employer agree that this Agreement shall control as the exclusive remedy and full settlement of all released claims between Executive and Employer. The Agreement is binding as between two private parties, Executive and Employer. Therefore, this Agreement affects the two parties’ rights only, with no impact or restrictions on any third parties, including any government agency.

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6.RestrictiveCovenants.

(a) Confidentiality; Return of Property. Executive acknowledges that, as an executive of Employer, he has had access to confidential, proprietary and trade secret information of Employer. In addition, Executive acknowledges the competitive nature of Employer’s business and agrees and reaffirms that any information that is not public (by lawful means) or otherwise readily accessible by the public through lawful means acquired by Executive regarding Employer’s business, finances, costs, pricing, contracts, customers, prospects, plans, products, methods, technology, legal proceedings, personnel, directors and officers (whether or not such information is marked confidential) shall be considered Employer’s confidential information. In furtherance and not limitation of any prior agreements, to the extent that any of the following is not public (by lawful means) or otherwise readily accessible by the public through lawful means regarding confidentiality, Executive agrees not to disclose to anyone (other than Employer), or use for Executive’s benefit or the benefit of any other person (other than Employer), any trade secrets, marketing documents or information, financial statements, reports, salary information, product cost or price information, technical information, financial information, methods, technology, any information relating to customers, prospects, bids, proposals or sales or any other information acquired by Executive regarding Employer or its business, directors, officers and employees (whether or not such information is marked confidential). Furthermore, Executive agrees to return to Employer, on the Last Day of Employment, all Employer property and any information (including any copies thereof, electronic or otherwise) that Executive has received, prepared or helped to prepare during the course of Executive’s employment with Employer; provided, however, that Employer agrees to transfer title to Executive on an “as is, where is” basis to the 2011 Toyota Avalon provided to Executive for his use while an executive officer of Employer promptly following the Last Day of Employment and the expiration of the revocation period set forth in Schedule I attached hereto. All risk of loss with respect to the 2011 Toyota Avalon will pass to Executive upon the transfer of title to the vehicle to Executive and Employer will no longer be responsible for insurance or maintenance for such vehicle as of such date.

(b) Non-Compete. Employer agrees to waive its rights to enforce that certain covenant not to compete set forth in Section 9(a) of the Employment Agreement.

(c) Non-Solicitation. In consideration of the Separation Payment, and in furtherance and not limitation of any prior agreement between Executive and Employer with respect to non-solicitation matters, Executive acknowledges and agrees that, for a period of two (2) years following the Last Day of Employment, Executive shall not, directly or indirectly: (i) acting on behalf of any Financial Institution, regardless of where such Financial Institution is located or doing business, solicit any banking, lending or trust business or the business of providing financial, insurance or investment adviser services or products business for such Financial Institution from, or otherwise seek to obtain as a customer or client of such Financial Institution, any person or entity that, to the knowledge of the Executive, was a customer or client of Employer, and whom Executive, or anyone supervised directly or indirectly by Executive, worked or dealt with, at any point during the one-year period immediately preceding the Last Day of Employment; or (ii) acting on behalf of any other corporation or entity, including any Financial Institution, regardless of where such other corporation or entity is located or doing business, employ, recruit or solicit as an employee of such corporation or entity or retain or seek to retain as an agent or consultant of such corporation or entity, or any of its affiliates, any individual employed by or retained as an agent or consultant of Employer in furtherance of the

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Business at any point during the one-year period immediately preceding the Last Day of Employment if such individual possesses knowledge of any trade secrets or confidential customer information of Employer, or provided services that were unique and/or extraordinary to Employer in its Business and Executive worked with or directly or indirectly managed such individual at any time during the one-year period immediately preceding the Last Day of Employment.

(d) Insider Trading Policy. Executive shall remain subject to the Employer’s insider trading policy through the Last Day of Employment. In no event shall Executive trade in the securities of Employer in violation of any state or federal securities laws.

(e) Equitable Relief. Executive acknowledges and agrees that (i) any breach of this Agreement by Executive, including any breach of the terms of this Section 6, will cause Employer irreparable injury and damage, (ii) the provisions of this Agreement are necessarily of a special, unique and extraordinary nature and (iii) if Executive breaches or threatens to breach any such provisions, Employer shall be entitled, in addition to any other remedies and damages Employer could recover as a result of any such breach, to obtain equitable relief, including restraining orders or injunctions, both temporary and permanent, in order to prevent future violation thereof by Executive or any person with whom Executive may be affiliated.

(f) Existing Obligations. Executive agrees to remain bound by and to comply with, and reaffirms Executive’s obligations under, any agreement or policy relating to confidential information, invention, intellectual property, non-solicitation, or similar matters to which Executive is now subject, notwithstanding the reasons why Executive’s employment terminated or any conduct occurring prior to this date. The covenants and agreements set out in this Section 6 above are in addition to, and do not in any way cancel or supersede, any of such obligations or agreements. For the avoidance of doubt, Employer waives its rights to enforce any covenant not to compete which Executive may have agreed to prior to the date hereof.

(g) Survival. The provisions of this Section 6 shall survive any termination of this Agreement.

(h) Reformation. It is the intention of the parties to restrict the activities of the Executive under this Section 6(c) only to the extent necessary for the protection of the legitimate business interests of Employer, and the parties specifically covenant and agree that should any of the clauses or provisions of the restrictions set forth therein, under any set of circumstances, be held by a court of competent jurisdiction to be illegal, invalid or unenforceable under present or future laws effective, then and in that event, the provision shall not be rendered invalid or unenforceable and instead the parties consent and agree that the court so holding may reduce the extent or duration of such restrictions or effect any other change to such restrictions to such lesser degree or extent necessary to render such restrictions enforceable by said court to the maximum extent permissible under applicable law. The enforceability of the provisions of this Section 6 shall not be affected by the existence or non-existence of any agreement with similar terms between Employer and another employee, or by the failure of Employer to enforce, its agreement to waive or change the terms of any such agreement with another employee containing similar terms.

7.Non-Disparagement; No Re-Employment.

(a) Non-Disparagement. For a period of ten (10) years following the Last Day of Employment, Executive will not, directly or indirectly, make any statements, declarations, announcements, assertions, remarks, comments or suggestions, orally or in writing, that individually or collectively

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are, or may be construed as being, defamatory, derogatory, critical, negative, or disparaging to Employer (including any successor to Employer by merger or acquisition or any of such successor’s affiliates), or to any director, officer, controlling shareholder, member, employee or agent of any of the foregoing.

(b) No Re-Employment. Executive will never apply for or seek employment with Employer, or be employed by Employer, and agrees that Employer may refuse to employ him (or, if he has already been employed, dismiss him following discovery of that fact) without liability.

8. Legal Proceedings. Executive agrees to cooperate with Employer and its legal counsel, and to furnish any and all complete and truthful information, testimony or affidavits, in connection with any matter that arose during his employment with Employer, or in connection with any litigation, governmental proceeding or investigation, arbitration or claim, that in any way relates to the business or operations of Employer, or of which Executive may have any knowledge or involvement. Executive will make his best efforts to consult with and provide information to Employer and its legal counsel concerning all such matters, and appear as and when requested to provide any such information, assistance or testimony on reasonable notice. Employer will use its reasonable efforts to have such cooperation performed at reasonable times and places and in a manner as not to unreasonably interfere with any other employment or other business activity in which Executive may then be engaged. Nothing in this Agreement shall be construed or interpreted as requiring Executive to provide any testimony, sworn statement or declaration that is not complete and truthful. If Employer requires Executive to travel outside the metropolitan area in the United States where he then resides to provide any testimony or otherwise provide any such assistance, then Employer agrees to reimburse Executive for any reasonable, customary and necessary travel and lodging expenses incurred by him to do so provided Executive submits all documentation required under Employer’s reimbursement policies and as otherwise may be required to satisfy any requirements under applicable tax laws for Employer to deduct those expenses. To the extent that Executive is required to spend significant time assisting Employer as contemplated under this Section 8, Employer shall compensate the Executive at a reasonable hourly rate to be agreed upon by the parties, each party acting reasonably. Nothing in this Agreement shall prevent Executive from giving truthful testimony or information to law enforcement entities, administrative agencies or courts or in any other legal proceedings as required by law, including, but not limited to, assisting in an investigation or proceeding brought by any governmental or regulatory body or official related to alleged violations of any law relating to fraud or any rule or regulation of the Securities and Exchange Commission.

9. Further Assurances. Executive agrees to execute such further instruments and take such further actions as Employer shall reasonably require to accomplish the purposes of this Agreement. Without limiting the generality of the foregoing, Executive agrees to execute a second release, in a form attached hereto as Schedule I, upon the occurrence of the Last Day of Employment. Executive acknowledges and agrees that the execution of such a release and the expiration of the applicable revocation period with respect to such release is a condition to the payment of the Separation Payment hereunder.

10.General Provisions.

(a) Entire Agreement. This Agreement contains the entire agreement between the parties concerning the separation of the Executive from all positions of the Executive with the Employer. This Agreement and any agreement, instrument or document to be executed in connection herewith (as referenced herein) contain the parties’ entire understanding and agreement with respect to the subject matter hereof (the termination of Executive’s employment and directorships with Employer, the Separation Payment and the treatment of the outstanding equity awards currently held by Executive and the release of any potential related claims). Any discussions, agreements, promises, representations,

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warranties or statements between the parties or their representatives (whether or not conflicting or inconsistent) that are not expressly contained or incorporated herein shall be null and void and are merged into this Agreement, except that any confidentiality agreement, non-solicitation agreement, invention or intellectual property rights or assignment, equity award agreement or other agreement between Employer and Executive, and any qualified or non-qualified plan document expressly covering a party’s rights after termination of employment, shall remain in full force and effect, in accordance with its terms, after the execution of this Agreement, except to the extent specified in this Agreement.

(b) Modification, Amendment and Waiver. Neither this Agreement, nor any part hereof, may be modified or amended orally, by trade usage or by course of conduct or dealing, but only by and pursuant to an instrument in writing duly executed and delivered by the party sought to be charged therewith. No covenant or condition of this Agreement can be waived, except by the written consent of the party entitled to receive the benefit thereof. Forbearance or indulgence by a party in any regard whatsoever shall not constitute a waiver of a covenant or condition to be performed by the other party to which the same may apply, and, until complete performance by such other party of such covenant or condition, the party entitled to receive the benefit thereof shall be entitled to invoke any remedy available to it under this Agreement, at law, in equity, by statute or otherwise, despite such forbearance or indulgence.

(c) Successors, Assigns and Third Party Beneficiaries. This Agreement shall be binding upon, and inure to the benefit of, the parties hereto and their respective successors and permitted assigns and is freely assignable by Employer. Except as expressly provided herein, neither this Agreement nor any rights hereunder may be assigned or transferred, and no duties may be delegated, by any party hereto without the prior written consent of the other party hereto. Each subsidiary or affiliate of Arrow Financial Corporation (and their predecessors, successors and assigns) shall be a third-party beneficiary of this Agreement, as if such subsidiary or affiliate was specifically party hereto.

(d) Construction. This Agreement shall not be construed more strictly against one party than against another party merely by virtue of the fact that this Agreement may have been physically prepared by such party, or such party’s counsel, it being agreed that all parties, and their respective counsel, have mutually participated in the negotiation and preparation of this Agreement. Unless the context of this Agreement clearly requires otherwise: (i) references to the plural include the singular and vice versa; (ii) references to any person include such person’s successors and assigns but, if applicable, only if such successors and assigns are permitted by this Agreement; (iii) references to one gender include all genders; (iv) “including” is not limiting; (v) “or” has the inclusive meaning represented by the phrase “and/or”; (vi) the words “hereof”, “herein”, “hereby”, “hereunder” and similar terms in this Agreement refer to this Agreement as a whole and not to any particular provision of this Agreement; (vii) article, section, subsection, clause, exhibit and schedule references are to this Agreement unless otherwise specified; (viii) reference to any agreement (including this Agreement), document or instrument means such agreement, document or instrument as amended or modified and in effect from time to time in accordance with the terms thereof and, if applicable, the terms hereof; and (ix) general or specific references to any law means such law as amended, modified, codified or re-enacted, in whole or in part, and in effect from time to time.

(e) Governing Law. This Agreement is deemed to have been entered into and accepted in the State of New York, and all questions with respect to the formation and construction of this Agreement, and the rights and obligations of the parties hereto, shall be governed by and determined in accordance with the laws of the State of New York, which are applicable to agreements entered into and performed

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entirely within such State, without giving effect to the choice or conflicts of law provisions thereof. Employer and Executive each hereby agree that all claims, actions, suits and proceedings between the parties hereto relating to this Agreement may be filed, tried and litigated in the state courts of the State of New York or (if federal jurisdiction exists) the United States District Court for the Northern District of New York. In connection with the foregoing, the parties hereto consent to the jurisdiction and venue of such courts and expressly waive any claims or defenses of lack of personal jurisdiction of or proper venue by such courts, and any claim that either such forum is not a convenient or the most convenient forum. In the event of a breach of this Agreement, the breaching party agrees to pay all costs of enforcement and collection of any and all remedies and damages, including reasonable attorneys’ fees.

(f) Severability. If any Section (or part thereof) of this Agreement is found by a court of competent jurisdiction to be contrary to, prohibited by or invalid under any applicable law, such court may modify such Section (or part thereof) so, as modified, such Section (or part thereof) will be enforceable and will to the maximum extent possible comply with the apparent intent of the parties in drafting such Section (or part thereof). No such modification or omission of a Section (or part thereof) shall in any way affect or impair such Section (or part thereof) in any other jurisdiction. If, in the sole judgment of Employer, a Section (or part thereof) of this Agreement is so modified or omitted in a manner which eliminates a substantial part of the benefit intended to be received by Employer hereunder, then Employer may rescind this Agreement and Executive shall immediately return to Employer the Separation Payment hereunder.

(g) Captions. The captions, headings and titles of the various Sections of this Agreement are for convenience of reference only, and shall not be deemed or construed to limit or expand the substantive provisions of such Sections.

(h) Counterparts. This Agreement may be executed in two or more counterparts, each of which shall constitute an original, but all of which together shall constitute a single agreement. A facsimile signature is as good as an original.

11. Execution and Delivery; Time to Consider Agreement; Time to Revoke Agreement. This Agreement was presented to Executive on October 17, 2017. Executive has been advised (and hereby is advised) to take this Agreement home, read it, consult with an attorney or attorneys of his choice and carefully consider all of its provisions before signing it.

Executive acknowledges that he has been given at least twenty-one (21) days to consider this Agreement thoroughly and Executive was encouraged to consult with his personal attorney at his own expense, if desired, before signing below, Executive further agrees that any changes made to this Agreement will not restart the running of the 21-day period referenced herein.

Executive understands that he may revoke this Agreement within seven (7) days after its signing and that any revocation must be made in writing and submitted within such seven (7) day period to Debra Ann Meier at the address noted below. Executive further understands that if he revokes this Agreement, he shall not receive the Separation Payment or other benefits set forth in Section 2 of this Agreement.

Executive will have until 5:00 P.M., New York Time, on November 7, 2017 to consider, sign and return this Agreement to Debra Ann Meier, Sr. Vice President of Human Resources and Training, Arrow Financial Corporation, 250 Glen Street, Glens Falls, New York 12801. If Executive fails to return this Agreement on a timely basis, the payments described in this Agreement and the benefits agreed upon will not be paid or

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provided and this Agreement shall be null, void and of no force or effect with respect to either Executive or Employer.

[Remainder of page intentionally left blank]

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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first set forth above.

EXECUTIVE: /s/ Terry R. Goodemote      Terry R. Goodemote EMPLOYER: ARROW FINANCIAL CORPORATION By: /s/ Thomas J. Murphy Name: Thomas J. Murphy Title: President and CEO

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Schedule I

RELEASE AGREEMENT

THIS RELEASE AGREEMENT (this “Agreement”), by and between Arrow Financial Corporation, a New York corporation (together with its subsidiaries, “Employer”), and Terry R. Goodemote (“Employee”), is entered into and effective as of this ___day of __________, 2017.

Preliminary Statement

A. Employee and Employer previously entered into that certain Executive Separation Agreement and Release dated as of ______________, 2017 (the “Separation Agreement”), pursuant to which Employee, among other things, (i) resigned his director and officer positions with Employer effective as of the date thereof, (ii) accepted continued employment as a non-officer employee of Employer and (iii) agreed to execute and deliver this Agreement within 21 days after the Last Day of Employment as a condition to receiving the Separation Payment. Capitalized terms used but not otherwise defined herein shall have the meanings ascribed to them in the Separation Agreement.

B. Without any admission or concern as to fault, liability or wrongdoing, to ensure an effective and smooth transition in leadership, and to avoid the time, distractions and resource expenditures potentially associated with Employee’s departure, Employer and Employee desire to resolve all matters relating to or arising out of Employee’s employment by Employer on the terms described below.

C. Employee is signing this Agreement in order to satisfy a condition to receiving the Separation Payment,

D. Employee has been (and hereby is) advised in writing to consult with an attorney prior to finally accepting this Agreement.

NOW, THEREFORE, in consideration of the mutual agreements and promises contained herein, in order for Employee to satisfy a condition to receiving the Separation Payment, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

1. Resignation by Employee; Separation Benefits. Employee has voluntarily and irrevocably resigned his employment with Employer effective as of the Last Date of Employment. The employment of Employee by Employer, in any capacity whatsoever, has terminated and ceased. Employer shall provide to Employee the Separation Payment and the other benefits to which he is entitled in accordance with the terms and conditions of the Separation Agreement, conditional upon Employee’s execution of this Agreement, expiration of the revocation period provided herein and continued performance of all obligations under this Agreement and the Separation Agreement.

2. Prior Agreements Superseded; Representations and Releases.

(a) Prior Agreements, Practices, Policies, Procedures and Plans Superseded. Employee agrees that any agreement (other than the Separation Agreement or as is specifically contemplated in the Separation Agreement) between Employer and Employee with respect to employment, severance or separation payments, is hereby terminated and any such agreement or any other severance practice,

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program, policy, procedure, arrangement or plan (except as explicitly set forth in this Agreement or the Separation Agreement) of Employer is superseded in its entirety. Employee will have no further rights, and Employer will have no further obligations, under any such agreement, practice, program, policy, procedure, arrangement or plan (except as explicitly set forth in this Agreement or the Separation Agreement).

(b) Representations. Employee represents and warrants to Employer that (i) Employee (A) has not filed any suit, action, claim, allegation or other proceeding at law or in equity, before any court, governmental agency, arbitration panel or other forum of any nature (an “Action”) with respect to the matters released in Section 2(c) below and (B) will not prosecute, and will immediately dismiss with prejudice, any pending Action with respect to the matters released in Section 2(c) below; (ii) Employee has not assigned to any other person or entity any right(s) or claim(s) Employee may have against Employer; (iii) in deciding to execute this Agreement (A) no fact, evidence, event or transaction currently unknown to Employee, but which may hereinafter become known to Employee, shall affect in any way or any manner the final or unconditional nature of this Agreement; (B) Employee’s execution of this Agreement is a knowing and voluntary act on Employee’s part; (C) Employee has read and fully understands the terms of this Agreement, including the final and binding nature and effect of Employee’s waiver of rights by execution of this Agreement and has been advised (and hereby is advised) in writing to consult with an attorney before signing the Agreement at the time Employee first received this Agreement; (D) Employee has been provided with a reasonable and adequate period of time to consider this Agreement and consult with his attorneys and advisors concerning this Agreement before signing it; and (E) Employee has not been promised anything or provided any consideration for entering into this Agreement that is not specified in this Agreement. In addition, Employee hereby represents and warrants to Employer that he has disclosed to the Chairman of the Arrow Financial Corporation Board of Directors, on or prior to the date hereof, any material violation of federal, state, foreign or local criminal law or regulation that is applicable to Employer, any threatened or pending federal, state, foreign or local governmental criminal investigation against Employer and any practice or policy of Employer that may be unlawful under applicable federal, state, foreign or local criminal law. Further, Employee represents and warrants to Employer that the facts relating to Employee contained in the Preliminary Statement are true and correct.

(c)Waiver and Release.

(1) Employee hereby releases, gives up and waives any and all known and unknown rights, causes of action, lawsuits and claims for liability Employee may now or in the future have against any of the Employer Parties (defined below) in any way arising out of, based upon or relating to (i) Employee’s employment with Employer or the termination of or resignation from such employment, (ii) any promise, policy, practice, agreement, action or conduct of any of the Employer Parties to date, or (iii) any fact occurring prior to this date. Employee acknowledges that this means that, among other claims, he is releasing the Employer Parties from and may not bring claims against any of them under (i) Title VII of the Civil Rights Act of 1964 or Sections 1981 and 1983 of the Civil Rights Act of 1866, which prohibit discrimination based on race, color, national origin, ancestry, religion, or sex; (ii) the Age Discrimination in Employment Act, which prohibits discrimination based on age; (iii) the Equal Pay Act, which prohibits paying men and women unequal pay for equal work; (iv) the Americans with Disabilities Act and Sections 503 and 504 of the Rehabilitation Act of 1973, which prohibit discrimination based on disability; (v) the WARN Act, which requires that advance notice be given of certain workforce reductions; (vi) the Employee Retirement Income Security Act,

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which among other things, protects employee benefits; (vii) the Family and Medical Leave Act of 1993, which requires employers to provide leaves of absence under certain circumstances; (viii) the Sarbanes-Oxley Act of 2002, which, among other things, provides “whistleblower” protection; (ix) the National Labor Relations Act, the New York State Human Rights Law, the New York State Labor Law (including but not limited to the New York State Worker Adjustment and Retraining Notification Act, all provisions prohibiting discrimination and retaliation, and all provisions regulating wage and hour law), the New York State Corrections Law, the New York State Civil Rights Law, Section 125 of the New York Workers' Compensation Law, and the New York City Human Rights Law all as amended and including all of their respective implementing regulations, (x) any applicable federal, state or local law prohibiting any form of discrimination or retaliation; (xi) any law prohibiting retaliation based on exercise by Employee of rights under any law, providing “whistleblower” protection, providing workers’ compensation benefits, protecting union activity, mandating leaves of absence, prohibiting discrimination based on veteran status or military service, restricting an employer’s right to terminate employees or otherwise regulating employment, or (xii) any law or decision enforcing express or implied employment contracts, requiring an employer to deal with employees fairly or in good faith, providing recourse for alleged wrongful discharge, tort, physical or personal injury, emotional distress, fraud, negligent misrepresentation, invasion of privacy, defamation, and similar or related claims, and any other law or decision relating to salary, commission, compensation, benefits, and other matters. Except to the extent specifically provided elsewhere in this Agreement, Employee further hereby releases, gives up and waives any and all rights and claims he had, has or will have to any bonus or payment under any bonus or incentive plan or program of Employer. Employee specifically represents that he has not been treated adversely on account of age or gender, or in retaliation for exercising any legal rights or reporting any alleged violation of law, nor has he otherwise been treated wrongfully in connection with his employment with Employer or his separation from employment and that he has no claim under the Age Discrimination in Employment Act, or any other federal, state or local law, decision, order or regulation concerning discrimination or retaliation. Except to the extent specifically provided elsewhere in this Agreement, Employee is not eligible for severance under any agreement, practice, program, policy, procedure, arrangement or plan of Employer and Employee specifically waives any right he may have to receive benefits under any such agreement, practice, program, policy, procedure, arrangement or plan. Employee acknowledges that Employer relied on the representations, warranties and agreements in this Agreement in agreeing to pay Employee the amounts and provide the benefits described in Section 2. Employee understands that he is releasing claims for events that have occurred prior to his signing this Agreement that he may not know about. Notwithstanding anything contained herein to the contrary, this release does not include (and Employee does not release) claims arising after the date Employee signs this Agreement, claims for vested benefits under any Employer benefit plan based upon Employee’s service until and ending on the Last Day of Employment, any claim for breach of this Agreement or any equity award agreement, or any pending claims for workers compensation that have already been filed or for on-the-job injuries that have already been reported. In addition, Employee understands that by signing this Agreement Employee waives and gives up, among other claims, the right to file a lawsuit seeking monetary damages from the Employer Parties for discrimination claims, but that this Agreement and release does not prohibit Employee from making an administrative complaint of employment discrimination against any of the Employer Parties with a governing federal, state or local agency.

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For the purposes of this Agreement, the term “Employer Parties” means (i) Arrow Financial Corporation and any of its present or former direct or indirect subsidiaries, affiliates, and any joint venture or other entity in which Employer or any such entity has any ownership interest; (ii) any employee benefit plans or trusts sponsored, established or maintained by Employer or any other entity described in (i) above; (iii) the present and former directors, officers, employees, agents, administrators, trustees and fiduciaries of each entity described in (i) or (ii) above; and (iv) the respective insurers, successors and assigns of each person or entity described in (i), (ii) or (iii) above.

(2) Employer hereby releases, gives up and waives any and all known and unknown rights, causes of action, lawsuits and claims for liability Employer may now or in the future have against Employee in any way arising out of, based upon or relating to (i) Employee’s employment with Employer or the termination of or resignation from such employment, (ii) any promise, policy, agreement, action or conduct of Employee to date, or (iii) any fact occurring prior to this date, except for rights, claims, causes of action and claims for liability against Employee in any way based on any violation by Employee of the Employer’s Code of Conduct, any criminal conduct by Employee, any knowing or intentional violation of law by Employee, or any fraud or breach of fiduciary duty by Employee (“Retained Claims”). Notwithstanding anything contained herein to the contrary, this release does not include (and Employer does not release) any Retained Claims, any claim for breach of this Agreement or the Separation Agreement or any confidentiality or non-solicitation agreement signed by Employee, or any claims arising after this date.

(d) Nature of Release. It is expressly understood and agreed that this Agreement is intended to cover and does cover not only all known losses and damages but any future losses and damages not now known or anticipated but which may later develop or be discovered, including the effects and consequences thereof. It is further expressly understood and agreed that this Agreement may be pleaded as a counterclaim to or as a defense in bar or abatement of any action taken by or on behalf of either Employer or Employee. Employee agrees that neither this Agreement nor performance hereunder constitutes or should be construed as an admission by any of the Employer Parties of any fault, liability, wrongdoing, or violation of any Employer policy, any federal, state, foreign or local law or regulation, common law, or any breach of any contract or any other wrongdoing of any type, all of which are expressly denied by Employer. Likewise, Employer agrees that neither this Agreement nor performance hereunder constitutes or should be construed as an admission by Employee of any fault, liability, wrongdoing, or violation of any Employer policy, any federal, state, foreign or local law or regulation, common law, or any breach of any contract or any other wrongdoing of any type, all of which are expressly denied by Employee.

3. Covenant Not To Sue; Indemnification. Employee and Employer each agree not to enter into any suit, action or other proceeding at law or in equity (including administrative actions), or to prosecute further any existing suit or action that might presently exist, or to make any claim or demand of any kind or nature against any of the Employer Parties or Employee (as the case may be), in any such case asserting any claim released by Employee or Employer (as the case may be) by Section 4(c)(1) and (2) of this Agreement. If Employer or Employee enters into any such suit, action or other proceeding in violation of this Section 5, the party who does so shall (i) indemnify, defend and hold the other (which, in the case of Employer shall include all the Employer Parties) harmless from and against any and all liabilities, obligations, losses, damages, penalties, claims, action, suits, costs, expenses and disbursements (including attorneys’ fees and expenses and court costs whether or not litigation is commenced and, if litigation is commenced, during all

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trial and appellate phases of such litigation) of any kind and nature whatsoever which may be imposed on, incurred by or asserted against any such person in any way relating to, arising out of, connected with or resulting from such actions, including any of the matters released hereunder and (ii) in the case of Employee, immediately return the Separation Payment to Employer.

Notwithstanding the foregoing, nothing contained herein shall prevent Employee from filing an administrative charge of discrimination with the Equal Employment Opportunity Commission (“EEOC”) or any state or local fair employment practices (“FEP”) agency. Employee agrees, however, that he shall not seek, accept, or be entitled to any monetary relief, whether for himself individually or as a member of a class or group, arising from an EEOC or FEP agency charge filed by Employee or on his behalf. No federal, state or local government agency is a party to this Agreement and none of the provisions of this Agreement restrict or in any way affect a government agency’s authority to investigate or seek relief in connection with any of the released claims. However, if a government agency were to pursue any matters falling within the release of claims, which it is free to do, Employee and Employer agree that this Agreement shall control as the exclusive remedy and full settlement of all released claims between Employee and Employer. The Agreement is binding as between two private parties, Employee and Employer. Therefore, this Agreement affects the two parties’ rights only, with no impact or restrictions on any third parties, including any government agency.

4.General Provisions.

(a) Entire Agreement. This Agreement and the Separation Agreement contains the entire agreement between the parties concerning the separation of the Employee from all positions of the Employee with the Employer. This Agreement, the Separation Agreement and any agreement, instrument or document to be executed in connection herewith (as referenced herein) contain the parties’ entire understanding and agreement with respect to the subject matter hereof(the termination of Employee’s employment and directorships with Employer, the Separation Payment and the treatment of the outstanding equity awards currently held by Employee and the release of any potential related claims). Any discussions, agreements, promises, representations, warranties or statements between the parties or their representatives (whether or not conflicting or inconsistent) that are not expressly contained or incorporated herein or in the Separation Agreement shall be null and void and are merged into this Agreement, except that any confidentiality agreement, non-solicitation agreement, invention or intellectual property rights or assignment, equity award agreement or other agreement between Employer and Employee, and any qualified or non-qualified plan document expressly covering a party’s rights after termination of employment, shall remain in full force and effect, in accordance with its terms, after the execution of this Agreement, except to the extent specified in this Agreement or the Separation Agreement.

(b) Modification, Amendment and Waiver. Neither this Agreement, nor any part hereof, may be modified or amended orally, by trade usage or by course of conduct or dealing, but only by and pursuant to an instrument in writing duly executed and delivered by the party sought to be charged therewith. No covenant or condition of this Agreement can be waived, except by the written consent of the party entitled to receive the benefit thereof. Forbearance or indulgence by a party in any regard whatsoever shall not constitute a waiver of a covenant or condition to be performed by the other party to which the same may apply, and, until complete performance by such other party of such covenant or condition, the party entitled to receive the benefit thereof shall be entitled to invoke any

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remedy available to it under this Agreement, at law, in equity, by statute or otherwise, despite such forbearance or indulgence.

(c) Successors, Assigns and Third Party Beneficiaries. This Agreement shall be binding upon, and inure to the benefit of, the parties hereto and their respective successors and permitted assigns and is freely assignable by Employer. Except as expressly provided herein, neither this Agreement nor any rights hereunder may be assigned or transferred, and no duties may be delegated, by any party hereto without the prior written consent of the other party hereto. Each subsidiary or affiliate of Arrow Financial Corporation (and their predecessors, successors and assigns) shall be a third-party beneficiary of this Agreement, as if such subsidiary or affiliate was specifically party hereto.

(d) Construction. This Agreement shall not be construed more strictly against one party than against another party merely by virtue of the fact that this Agreement may have been physically prepared by such party, or such party’s counsel, it being agreed that all parties, and their respective counsel, have mutually participated in the negotiation and preparation of this Agreement. Unless the context of this Agreement clearly requires otherwise: (i) references to the plural include the singular and vice versa; (ii) references to any person include such person’s successors and assigns but, if applicable, only if such successors and assigns are permitted by this Agreement; (iii) references to one gender include all genders; (iv) “including” is not limiting; (v) “or” has the inclusive meaning represented by the phrase “and/or”; (vi) the words “hereof”, “herein”, “hereby”, “hereunder” and similar terms in this Agreement refer to this Agreement as a whole and not to any particular provision of this Agreement; (vii) article, section, subsection, clause, exhibit and schedule references are to this Agreement unless otherwise specified; (viii) reference to any agreement (including this Agreement), document or instrument means such agreement, document or instrument as amended or modified and in effect from time to time in accordance with the terms thereof and, if applicable, the terms hereof; and (ix) general or specific references to any law means such law as amended, modified, codified or re-enacted, in whole or in part, and in effect from time to time.

(e) Governing Law. This Agreement is deemed to have been entered into and accepted in the State of New York, and all questions with respect to the formation and construction of this Agreement, and the rights and obligations of the parties hereto, shall be governed by and determined in accordance with the laws of the State of New York, which are applicable to agreements entered into and performed entirely within such State, without giving effect to the choice or conflicts of law provisions thereof. Employer and Employee each hereby agree that all claims, actions, suits and proceedings between the parties hereto relating to this Agreement may be filed, tried and litigated in the state courts of the State of New York or (if federal jurisdiction exists) the United States District Court for the Northern District of New York. In connection with the foregoing, the parties hereto consent to the jurisdiction and venue of such courts and expressly waive any claims or defenses of lack of personal jurisdiction of or proper venue by such courts, and any claim that either such forum is not a convenient or the most convenient forum. In the event of a breach of this Agreement, the breaching party agrees to pay all costs of enforcement and collection of any and all remedies and damages, including reasonable attorneys’ fees.

(f) Severability. If any Section (or part thereof) of this Agreement is found by a court of competent jurisdiction to be contrary to, prohibited by or invalid under any applicable law, such court may modify such Section (or part thereof) so, as modified, such Section (or part thereof) will be enforceable and will to the maximum extent possible comply with the apparent intent of the parties in drafting such Section (or part thereof). No such modification or omission of a Section (or part thereof) shall in any way affect or impair such Section (or part thereof) in any other jurisdiction. If,

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in the sole judgment of Employer, a Section (or part thereof) of this Agreement is so modified or omitted in a manner which eliminates a substantial part of the benefit intended to be received by Employer hereunder, then Employer may rescind this Agreement and Employee shall immediately return to Employer the Separation Payment hereunder.

(g) Captions. The captions, headings and titles of the various Sections of this Agreement are for convenience of reference only, and shall not be deemed or construed to limit or expand the substantive provisions of such Sections.

(h) Counterparts. This Agreement may be executed in two or more counterparts, each of which shall constitute an original, but all of which together shall constitute a single agreement. A facsimile signature is as good as an original.

5. Execution and Delivery, Time to Consider Agreement, Time to Revoke Agreement. This Agreement was presented to Employee on October 17, 2017. Employee has been advised (and hereby is advised) to take this Agreement home, read it, consult with an attorney or attorneys of his choice and carefully consider all of its provisions before signing it.

Employee acknowledges that he has been given at least twenty-one (21) days to consider this Agreement thoroughly and Employee was encouraged to consult with his personal attorney at his own expense, if desired, before signing below, Employee further agrees that any changes made to this Agreement will not restart the running of the 21-day period referenced herein.

Employee understands that he may revoke this Agreement within seven (7) days after its signing and that any revocation must be made in writing and submitted within such seven (7) day period to Debra Ann Meier at the address noted below. Employee further understands that if he revokes this Agreement, he shall not receive the Separation Payment or other benefits set forth in Section 2 of the Separation Agreement.

Employee will have until 5:00 P.M., New York Time, on November 7, 2017 to consider, sign and return this Agreement to Debra Ann Meier, Sr. Vice President of Human Resources and Training, Arrow Financial Corporation, 250 Glen Street, Glens Falls, New York 12801. If Employee fails to return this Agreement on a timely basis, the payments described in this Agreement and the benefits agreed upon will not be paid or provided and this Agreement shall be null, void and of no force or effect with respect to either Employee or Employer.

[Remainder of page intentionally left blank]

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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first set forth above.

EXECUTIVE: Terry R. Goodemote EMPLOYER: ARROW FINANCIAL CORPORATION By: Name: Title:

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Schedule II

POST RETIREMENT MEDICAL - DENTAL - LIFE INSURANCE

(see attached)

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Tier 4 & Tier 5

POST RETIREMENT

MEDICAL - DENTAL - LIFE INSURANCE

Effective January 1, 2010

For Eligible Employees Retiring On or After January 1, 2010

INTRODUCTION

Employees who regularly work 1,000 hours per year and were hired prior to January 1, 2007, may continue to enroll in the Company’s group medical and dental plans after retirement, according to the guidelines listed below in the Waiting Period. Employees who regularly work 1,000 hours per year and were hired prior to January 1, 2006, may qualify for company provided Life insurance as listed in the last section of this summary.

WAITING PERIOD

Employees who regularly work 1,000 hours per year will qualify for participation in this plan 1) at age 55 with a minimum of ten (10) years of service 2) at age sixty-five (65) with a minimum of five (5) years of service, and 3) for employees with a minimum of fifteen (15) years of service as of January 1, 2005, after completing twenty-five (25) years of service.

MEDICAL INSURANCE (For Employees Hired Prior to January 1, 2007)

The Company will contribute the stated dollar amount annually (pro-rated on a monthly basis) for your medical insurance under the Company group plans.

Full Years Company Contribution Company Contribution

of Service*Retirees Under Age 65Retirees 65 and Older w/Medicare Part A&B

Monthly     Per Year        Monthly     Per Year

5- 10 0 0 0

10$87.58$1,051 $49.33$ 592

11$91.17$1,094$51.33$ 616

12$94.58$1,135$53.25$ 639

13$98.00$1,176$55.25$ 663

14$101.67$1,220$57.25$ 687

15$105.08$1,261$59.17$ 710

16$112.08$1,345$63.08$ 757

17$119.08$1,429$67.17$ 806

18$126.17$1,514$71.00$ 852

19$133.17$1,598$75.00$ 900

20$140.08$1,681$78.92$ 947

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21$147.25$1,767$82.83$ 994

22$154.25$1,851$86.67$1,040

23$161.08$1,933$90.75$1,089

24$168.08$2,017$94.67$1,136

25 and Over$175.08$2,101$98.67$1,184

The total annual premium cost for Medical coverage for yourself currently ranges from $5,064 to $5,827 (under age 65) and $2,405 to $3,599 (65 and over) depending on the plan you select. Medical insurance for your dependents may be continued after retirement with you paying 100% of the cost. The annual cost for dependents currently ranges from an additional $5,292 to $6,118 (under 65) and $2,405 to $3,599 (65 and over) depending on the number of dependents and plan you select. Rates are subject to change each January 1.

* For purposes of earning the Company Contribution, service begins on 6/27/97 for employees who joined the Company from Fleet Bank in 1997, service begins on 11/29/04 for employees who joined the Company from Capital Financial Group Inc. in 2004, and service begins on 04/08/05 for employees who joined the Company from HSBC Bank USA, NA in 2005. For purposes of eligibility, service begins on the Adjusted Hire Date.

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POST RETIREMENT

MEDICAL - DENTAL - LIFE INSURANCE

Effective January 1, 2010

For Eligible Employees Retiring On or After January 1, 2010

DENTAL INSURANCE ( For Employees Hired Prior to January 1, 2007 )*

Dental Insurance for you and your dependents may be continued after retirement with you paying 100% of the cost. The current annual cost for covering yourself is $408, one dependent is an additional $312 and two or more dependents is an additional $648.

SPECIAL CONDITIONS FOR MEDICAL & DENTAL INSURANCE

Not Enrolled: If you and your dependents are not enrolled in the Company’s group medical or dental plans at the time of your retirement, you and your dependents may enroll up to 12 months after your retirement subject to a “change in family status” acceptable to the provider insurance company. After that time, you and your dependents may not enroll in the Company’s group plans.

Enrolled: If you and your dependents are enrolled in the Company’s group plans at the time of your retirement and later discontinue participation, neither you nor your dependents may re-enroll in the Company’s group plans at any time. If you predecease your dependents, your dependents enrolled at that time may continue participating in the Company’s plans under the same terms and conditions.

LIFE INSURANCE ( For Employees Hired Prior to January 1, 2006 )

If you have Group Term Life Insurance when you retire and you qualify as described below, the company will continue a portion of your Group Term Life Insurance during retirement:

Full Years of Service	Percentage of Insurance at Retirement Continued at No Cost to Retiree
5 but less than 10	0%
10 but less than 25	25%
25 or more	50%

The amount of insurance will be reduced by 20% of the amount continued after retirement beginning on the July 1 after your 66^th birthday and each July 1 thereafter, to $5,000 at age 70 (or sooner if annual reductions place the amount of insurance at $5,000 before age 70).

AMENDMENT & TERMINATION

The Company expects to continue post retirement benefits indefinitely but necessarily reserves the right to amend or discontinue these benefits at any time.

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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first set forth above.

EXECUTIVE: Terry R. Goodemote EMPLOYER: ARROW FINANCIAL CORPORATION By: Name: Title:

Signature Page to Executive Separation Agreement and Release

Schedule II

POST RETIREMENT MEDICAL – DENTAL – LIFE INSURANCE

(see attached)

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EX-15

Exhibit 15

Report of Independent Registered Public Accounting Firm

November 7, 2017

The Board of Directors and Stockholders

Arrow Financial Corporation

Glens Falls, New York

Re: Registration Statements Forms S-3 (No. 333-197927, No. 333-210110, and No. 333-219822) and Forms S-8 (No. 333-62719, No. 333-151550, No. 333-188479, and No. 333-188480)

With respect to the subject registration statements, we acknowledge our awareness of the use therein of our report dated November 7, 2017 related to our review of interim financial information.

Pursuant to Rule 436 under the Securities Act of 1933 (the Act), such report is not considered part of a registration statement prepared or certified by an independent registered public accounting firm, or a report prepared or certified by an independent registered public accounting firm within the meaning of Sections 7 and 11 of the Act.

/s/ KPMG LLP

Albany, New York

EX-31.1

Certification of the Chief Executive Officer Pursuant to

Securities Exchange Act Rules 13a-14 and 15d-14

As Adopted Pursuant to

Section 302 of the Sarbanes-Oxley Act of 2002

I, Thomas J. Murphy, certify that:

1.I have reviewed the quarterly report on Form 10-Q of Arrow Financial Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting.

5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date:November 7, 2017

By:    /s/Thomas J. Murphy

Thomas J. Murphy

Chief Executive Officer

EX-31.2

Certification of the Chief Financial Officer Pursuant to

Securities Exchange Act Rules 13a-14 and 15d-14

As Adopted Pursuant to

Section 302 of the Sarbanes-Oxley Act of 2002

I, Edward J. Campanella, certify that:

1.I have reviewed the quarterly report on Form 10-Q of Arrow Financial Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting.

5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date:November 7, 2017

By:    /s/Edward J. Campanella

Edward J. Campanella

Chief Financial Officer

EX-32

Certification of Chief Executive Officer and Chief Financial Officer

Pursuant to 18 U.S.C. Section 1350

As Adopted Pursuant To

Section 906 of The Sarbanes-Oxley Act of 2002

In connection with the quarterly report of Arrow Financial Corporation (the "Company") on Form 10-Q for the period ended September 30, 2017, filed with the Securities and Exchange Commission (the "Report"), we, Thomas J. Murphy, Chief Executive Officer of the Company, and Edward J. Campanella, Chief Financial Officer of the Company, hereby certify, in accordance with 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of our knowledge:

(a)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(b)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: November 7, 2017

/s/Thomas J. Murphy

Thomas J. Murphy

Chief Executive Officer

/s/Edward J. Campanella

Edward J. Campanella

Chief Financial Officer

XML

Document and Entity Information Document - shares	9 Months Ended
	Sep. 30, 2017	Oct. 31, 2017
Entity Information [Line Items]
Entity Registrant Name	Arrow Financial Corporation
Entity Central Index Key	0000717538
Current Fiscal Year End Date	--12-31
Entity Filer Category	Accelerated Filer
Document Type	10-Q
Document Period End Date	Sep. 30, 2017
Document Fiscal Year Focus	2017
Document Fiscal Period Focus	Q3
Amendment Flag	false
Entity Common Stock, Shares Outstanding		13,920,322
Entity Well-known Seasoned Filer	No
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes

XML

Consolidated Balance Sheets (Unaudited) - USD ($) $ in Thousands	Sep. 30, 2017	Dec. 31, 2016	Sep. 30, 2016
ASSETS
Cash and Due From Banks	$ 55,683	$ 43,024	$ 66,556
Interest-Bearing Deposits at Banks	24,983	14,331	35,503
Investment Securities:
Available-for-Sale	315,459	346,996	339,190
Held-to-Maturity (Approximate Fair Value of $343,899 at September 30, 2017; $343,751 at December 31, 2016; and $347,441 at September 30, 2016)	341,526	345,427	338,238
Other Investments	6,704	10,912	5,371
Loans	1,908,799	1,753,268	1,707,216
Allowance for Loan Losses	(17,695)	(17,012)	(16,975)
Net Loans	1,891,104	1,736,256	1,690,241
Premises and Equipment, Net	26,432	26,938	26,718
Goodwill	21,873	21,873	21,873
Other Intangible Assets, Net	2,395	2,696	2,802
Other Assets	58,303	56,789	53,993
Total Assets	2,744,462	2,605,242	2,580,485
LIABILITIES
Noninterest-Bearing Deposits	448,515	387,280	381,760
Interest-Bearing Checking Accounts	967,250	877,988	993,221
Savings Deposits	696,805	651,965	629,201
Time Deposits over $250,000	28,464	32,878	45,237
Other Time Deposits	166,082	166,435	163,768
Total Deposits	2,307,116	2,116,546	2,213,187
Federal Funds Purchased and Securities Sold Under Agreements to Repurchase	61,419	35,836	38,589
Federal Home Loan Bank Overnight Advances	33,000	123,000	0
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	23,279	22,008	24,501
Total Liabilities	2,499,814	2,372,390	2,351,277
STOCKHOLDERS’ EQUITY
Preferred Stock, $5 Par Value; 1,000,000 Shares Authorized	0	0	0
Common Stock, $1 Par Value; 20,000,000 Shares Authorized (18,481,301 Shares Issued and Outstanding at September 30, 2017; 17,943,201 at December 31, 2016 and 17,943,201 at September 30, 2016)	18,481	17,943	17,943
Additional Paid-in Capital	289,294	270,880	269,680
Retained Earnings	22,581	28,644	25,400
Unallocated ESOP Shares (20,050 Shares at September 30, 2017; 19,466 Shares at December 31, 2016 and 38,396 Shares at September 30, 2016)	(400)	(400)	(750)
Accumulated Other Comprehensive Loss	(6,135)	(6,834)	(5,442)
Treasury Stock, at Cost (4,570,291 Shares at September 30, 2017; 4,441,093 Shares at December 31, 2016 and 4,479,257 Shares at September 30, 2016)	(79,173)	(77,381)	(77,623)
Total Stockholders’ Equity	244,648	232,852	229,208
Total Liabilities and Stockholders’ Equity	$ 2,744,462	$ 2,605,242	$ 2,580,485

XML

Consolidated Balance Sheet Parenthetical - USD ($) $ in Thousands	Sep. 30, 2017	Dec. 31, 2016	Sep. 30, 2016
Statement of Financial Position [Abstract]
Held-to-Maturity Securities, at Fair Value	$ 343,899	$ 343,751	$ 347,441
Preferred Stock, par value, in dollars per share	$ 5	$ 5	$ 5
Preferred Stock, shares authorized	1,000,000	1,000,000	1,000,000
Common Stock, par value, in dollars per share	$ 1	$ 1	$ 1
Common Stock, shares authorized	20,000,000	20,000,000	20,000,000
Common Stock, shares issued	18,481,301	17,943,201	17,943,201
Unallocated ESOP Shares ,in shares	20,050	19,466	38,396
Treasury Stock, in shares	4,570,291	4,441,093	4,479,257

XML

Consolidated Statements of Income (Unaudited) - USD ($) shares in Thousands, $ in Thousands		3 Months Ended				9 Months Ended
		Sep. 30, 2017		Sep. 30, 2016		Sep. 30, 2017		Sep. 30, 2016
INTEREST AND DIVIDEND INCOME
Interest and Fees on Loans		$ 17,996		$ 15,833		$ 51,693		$ 46,565
Interest on Deposits at Banks		104		34		242		100
Interest and Dividends on Investment Securities:
Fully Taxable		1,924		1,889		5,927		5,994
Exempt from Federal Taxes		1,575		1,526		4,660		4,486
Total Interest and Dividend Income		21,599		19,282		62,522		57,145
INTEREST EXPENSE
Interest-Bearing Checking Accounts		376		320		1,088		941
Savings Deposits		356		231		963		677
Time Deposits over $250,000		66		61		187		133
Other Time Deposits		241		231		702		677
Federal Funds Purchased and Securities Sold Under Agreements to Repurchase		13		9		29		24
Federal Home Loan Bank Advances		700		390		1,651		1,013
Junior Subordinated Obligations Issued to Unconsolidated Subsidiary Trusts		197		163		564		487
Total Interest Expense		1,949		1,405		5,184		3,952
NET INTEREST INCOME		19,650		17,877		57,338		53,193
Provision for Loan Losses		800		480		1,580		1,550
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES		18,850		17,397		55,758		51,643
NONINTEREST INCOME
Income From Fiduciary Activities		2,116		1,923		6,284		5,854
Fees for Other Services to Customers		2,453		2,491		7,122		7,144
Insurance Commissions		2,113		2,127		6,426		6,468
Net Gain on Securities Transactions		10		0		10		144
Net Gain on Sales of Loans		182		310		431		649
Other Operating Income		267		263		620		925
Total Noninterest Income		7,141		7,114		20,893		21,184
NONINTEREST EXPENSE
Salaries and Employee Benefits		9,251		8,693		27,343		25,223
Occupancy Expenses, Net		2,371		2,425		7,410		7,223
FDIC Assessments		225		217		679		844
Other Operating Expense		3,701		3,747		11,229		11,047
Total Noninterest Expense		15,548		15,082		46,661		44,337
INCOME BEFORE PROVISION FOR INCOME TAXES		10,443		9,429		29,990		28,490
Provision for Income Taxes		3,027		2,691		8,735		8,556
NET INCOME		$ 7,416		$ 6,738		$ 21,255		$ 19,934
Average Shares Outstanding:
Basic, in shares		13,889	[1]	13,810	[2]	13,889	[1]	13,775	[2]
Diluted, in shares	[2]	13,966	[1]	13,901		13,981	[1]	13,842
Per Common Share:
Basic Earnings, in dollars per share		$ 0.53	[1]	$ 0.49	[2]	$ 1.53	[1]	$ 1.45	[2]
Diluted Earnings, in dollars per share		$ 0.53	[1]	$ 0.48	[2]	$ 1.52	[1]	$ 1.44	[2]

[1] Cash dividends paid per share have been adjusted for the September 28, 2017 3% stock dividend.

[2] Share and Per Share Amounts have been restated for the September 28, 2017 3% stock dividend.

XML

Consolidated Statements of Comprehensive Income (Unaudited) - USD ($) $ in Thousands	3 Months Ended				9 Months Ended
	Sep. 30, 2017		Sep. 30, 2016		Sep. 30, 2017		Sep. 30, 2016
Statement of Comprehensive Income [Abstract]
Net Income	$ 7,416		$ 6,738		$ 21,255		$ 19,934
Other Comprehensive Income (Loss), Net of Tax [Abstract]
Net Unrealized Securities Holding Gains (Losses) Arising During the Period	9	[1]	(810)	[1]	465		2,309	[1]
Reclassification Adjustments for Securities Gains Included in Net Income	(6)	[1]	0	[1]	(6)	[2]	(88)	[1]
Amortization of Net Retirement Plan Actuarial Loss	64	[1]	111	[1]	245		314	[1]
Accretion of Net Retirement Plan Prior Service Credit	(2)	[1]	(1)	[1]	(5)		(5)	[1]
Other Comprehensive Income (Loss)	65		(700)		699		2,530
Comprehensive Income	$ 7,481		$ 6,038		$ 21,954		$ 22,464

[1] All amounts are net of tax. Amounts in parentheses indicate debits.

[2] These accumulated other comprehensive income components are included in the computation of net periodic pension cost.

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Consolidated Statements of Stockholders' Equity (Unaudited) - USD ($) $ in Thousands	Total		Common Stock	Additional Paid-In Capital	Retained Earnings		Unallocated ESOP Shares	Accumulated Other Comprehensive Loss	Treasury Stock
Stockholders' Equity, Beginning Balance at Dec. 31, 2015	$ 213,971		$ 17,421	$ 250,680	$ 32,139		$ (1,100)	$ (7,972)	$ (77,197)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net Income	19,934				19,934
Other Comprehensive Income	2,530	[1]						2,530
Stock Dividend			522	16,415	(16,937)
Cash Dividends Paid	(9,736)				(9,736)	[2]
Stock Options Exercised, Net	1,775			980					795
Shares Issued Under the Directors' Stock Plan	112			76					36
Shares Issued Under the Employee Stock Purchase Plan	358			229					129
Shares Issued for Dividend Reinvestment Plans	1,302			862					440
Stock-Based Compensation Expense	215			215
Tax Benefit for Disposition of Stock Options	63			63
Purchases of Treasury Stock	(1,826)								(1,826)
Allocation of ESOP Stock	510			160			350
Stockholders' Equity, Ending Balance at Sep. 30, 2016	229,208		17,943	269,680	25,400		(750)	(5,442)	(77,623)
Stockholders' Equity, Beginning Balance at Dec. 31, 2016	232,852		17,943	270,880	28,644		(400)	(6,834)	(77,381)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net Income	21,255				21,255
Other Comprehensive Income	699	[1]						699
Stock Dividend			538	16,661	(17,199)
Cash Dividends Paid	(10,119)				(10,119)
Stock Options Exercised, Net	734			335					399
Shares Issued Under the Directors' Stock Plan	126			84					42
Shares Issued Under the Employee Stock Purchase Plan	351			230					121
Shares Issued for Dividend Reinvestment Plans	1,256			843					413
Stock-Based Compensation Expense	261			261
Purchases of Treasury Stock	(2,767)								(2,767)
Stockholders' Equity, Ending Balance at Sep. 30, 2017	$ 244,648		$ 18,481	$ 289,294	$ 22,581		$ (400)	$ (6,135)	$ (79,173)

[1] These accumulated other comprehensive income components are included in the computation of net periodic pension cost.

[2] Cash dividends paid per share have been adjusted for the September 28, 2017 3% stock dividend.

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Consolidated Statements of Stockholders' Equity Parenthetical - $ / shares	9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016
Statement of Stockholders' Equity [Abstract]
Cash Dividends Paid, per Share, in dollars per share	$ 0.728	$ 0.707
Exercised, in shares	34,889	80,449
Shares Issued Under Directors Stock Plan, in shares	3,927	3,522
Shares Issued Under Employee Stock Purchase Plan, in shares	10,869	13,041
Shares Issued for Dividend Reinvestment Plans - Shares	37,525	44,448
Purchase of Treasury Stock, in shares	83,256	64,146
Allocation of ESOP Stock, in shares		17,997

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Consolidated Statements of Cash Flows (Unaudited) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016
Cash Flows from Operating Activities:
Net Income	$ 21,255	$ 19,934
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
Provision for Loan Losses	1,580	1,550
Depreciation and Amortization	4,247	4,605
Allocation of ESOP Stock	0	510
Net Gains on the Sale of Securities Available-for-Sale	(10)	(144)
Loans Originated and Held-for-Sale	(14,890)	(20,025)
Proceeds from the Sale of Loans Held-for-Sale	14,481	19,557
Net Gains on the Sale of Loans	(431)	(649)
Net Losses on the Sale of Premises and Equipment, Other Real Estate Owned and Repossessed Assets	197	120
Contributions to Retirement Benefit Plans	(640)	(534)
Deferred Income Tax Benefit	(20)	(464)
Shares Issued Under the Directors’ Stock Plan	126	112
Stock-Based Compensation Expense	261	215
Tax Benefit from Exercise of Stock Options	112	0
Net Increase in Other Assets	(1,689)	(3,045)
Net Increase in Other Liabilities	1,819	3,427
Net Cash Provided By Operating Activities	26,398	25,169
Cash Flows from Investing Activities:
Proceeds from the Sale of Securities Available-for-Sale	10,015	10,568
Proceeds from the Maturities and Calls of Securities Available-for-Sale	43,617	65,965
Purchases of Securities Available-for-Sale	(22,503)	(10,920)
Proceeds from the Maturities and Calls of Securities Held-to-Maturity	39,062	42,295
Purchases of Securities Held-to-Maturity	(36,018)	(60,786)
Net Increase in Loans	(156,643)	(133,616)
Proceeds from the Sales of Premises and Equipment, Other Real Estate Owned and Repossessed Assets	830	1,743
Purchase of Premises and Equipment	(1,335)	(1,083)
Proceeds from the Sale of a Subsidiary, Net	72	72
Net Decrease in Other Investments	4,208	3,468
Net Cash Used By Investing Activities	(118,695)	(82,294)
Cash Flows from Financing Activities:
Net Increase in Deposits	190,570	182,764
Net Increase (Decrease) in Short-Term Federal Home Loan Bank Borrowings	(90,000)	(82,000)
Net Increase (Decrease) in Short-Term Borrowings	25,583	15,416
Purchase of Treasury Stock	(2,767)	(1,826)
Stock Options Exercised, Net	734	1,775
Shares Issued Under the Employee Stock Purchase Plan	351	358
Tax Benefit from Exercise of Stock Options	0	63
Shares Issued for Dividend Reinvestment Plans	1,256	1,302
Cash Dividends Paid	(10,119)	(9,736)
Net Cash Provided By Financing Activities	115,608	108,116
Net Increase in Cash and Cash Equivalents	23,311	50,991
Cash and Cash Equivalents at Beginning of Period	57,355	51,068
Cash and Cash Equivalents at End of Period	80,666	102,059
Supplemental Disclosures to Statements of Cash Flow Information:
Interest on Deposits and Borrowings	5,168	3,932
Income Taxes	8,404	9,761
Non-cash Investing and Financing Activity:
Transfer of Loans to Other Real Estate Owned and Repossessed Assets	$ 1,055	$ 856

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Accounting Policies

9 Months Ended

Sep. 30, 2017

Accounting Policies [Abstract]

Accounting Policies

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 September 30, 2017, December 31, 2016 and September 30, 2016; the results of operations for the three- and nine-month periods ended September 30, 2017 and 2016; the consolidated statements of comprehensive income for the three- and nine-month periods ended September 30, 2017 and 2016; the changes in stockholders' equity for the nine-month periods ended September 30, 2017 and 2016; and the cash flows for the nine-month periods ended September 30, 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 flows.

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 nine months ended September 30, 2017, which resulted in an increase in earnings of approximately $112 thousand, representing earnings per share of less than $0.01.

In addition, during 2017, through the date of this report, the FASB issued 13 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 are currently in the process of identifying any required changes to our revenue recognition policies. 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 September 30, 2017, we hold $1.5 million of fair value in 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 September 30, 2017, we have less than $2.6 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 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.

ASU 2017-09 "Compensation-Stock Compensation" provides guidance about which changes to the terms and conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. The guidance highlights the requirements for applying modification accounting and the exception criteria relating to changes in share-based payment terms. For Arrow, the standard becomes effective in the first quarter of 2018, however, early adoption is permitted as early as the third quarter of 2017. We do not expect that the adoption of this change in accounting for share-based payment awards will have a material impact on our financial position or the results of operations in periods subsequent to its adoption.

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Investment Securities

9 Months Ended

Sep. 30, 2017

Investments, Debt and Equity Securities [Abstract]

Investment Securities

INVESTMENT SECURITIES (In Thousands)

The following table is the schedule of Available-For-Sale Securities at September 30, 2017, December 31, 2016 and September 30, 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
September 30, 2017
Available-For-Sale Securities,   at Amortized Cost	$	146,976	$	11,875	$	152,858	$	2,500	$	1,120	$	315,329
Available-For-Sale Securities,   at Fair Value	146,978		11,902		152,806		2,299		1,474		315,459
Gross Unrealized Gains	152		27		964		—		354		1,497
Gross Unrealized Losses	150		—		1,016		201		—		1,367
Available-For-Sale Securities,   Pledged as Collateral											206,637
Maturities of Debt Securities,   at Amortized Cost:
Within One Year	$	—	$	9,068	$	3,649	$	1,500			$	14,217
From 1 - 5 Years	146,976		1,890		114,127		—				262,993
From 5 - 10 Years	—		397		35,082		—				35,479
Over 10 Years	—		520		—		1,000				1,520
Maturities of Debt Securities,   at Fair Value:
Within One Year	$	—	$	9,076	$	3,691	$	1,499			$	14,266
From 1 - 5 Years	146,978		1,910		114,202		—				263,090
From 5 - 10 Years	—		396		34,913		—				35,309
Over 10 Years	—		520		—		800				1,320
Securities in a Continuous   Loss Position, at Fair Value:
Less than 12 Months	$	89,563	$	—	$	85,091	$	500	$	—	$	175,154
12 Months or Longer	—		—		—		1,800		—		1,800
Total	$	89,563	$	—	$	85,091	$	2,300	$	—	$	176,954
Number of Securities in a   Continuous Loss Position	23		—		31		3		—		57
Unrealized Losses on   Securities in a Continuous   Loss Position:
Less than 12 Months	$	150	$	—	$	1,016	$	—	$	—	$	1,166
12 Months or Longer	—		—		—		201		—		201
Total	$	150	$	—	$	1,016	$	201	$	—	$	1,367
Disaggregated Details:
US Treasury Obligations,   at Amortized Cost	$	64,711
US Treasury Obligations, at Fair Value	64,730
US Agency Obligations, at Amortized Cost	82,265
US Agency Obligations, at Fair Value	82,248
US Government Agency   Securities, at Amortized Cost					$	503
US Government Agency   Securities, at Fair Value					505
Government Sponsored Entity   Securities, at Amortized Cost					152,355
Government Sponsored Entity Securities, at Fair Value					152,301

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

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
September 30, 2016
Available-For-Sale Securities,   at Amortized Cost	$	152,511	$	31,562	$	144,598	$	4,500	$	1,120	$	334,291
Available-For-Sale Securities,   at Fair Value	153,926		31,628		148,087		4,299		1,250		339,190
Gross Unrealized Gains	1,415		69		3,489		—		130		5,103
Gross Unrealized Losses	—		3		—		201		—		204
Available-For-Sale Securities,   Pledged as Collateral											277,832
Securities in a Continuous   Loss Position, at Fair Value:
Less than 12 Months	$	—	$	9,237	$	—	$	1,022	$	—	$	10,259
12 Months or Longer	—		—		—		1,800		—		1,800
Total	$	—	$	9,237	$	—	$	2,822	$	—	$	12,059
Number of Securities in a   Continuous Loss Position	—		1		2		3		—		6
Unrealized Losses on Securities   in a Continuous Loss Position:
Less than 12 Months	$	—	$	3	$	—	$	1	$	—	$	4
12 Months or Longer	—		—		—		200		—		200
Total	$	—	$	3	$	—	$	201	$	—	$	204
Disaggregated Details:
US Agency Obligations, at Amortized Cost	$	152,511
US Agency Obligations, at Fair Value	153,926
US Government Agency   Securities, at Amortized Cost					$	10,849
US Government Agency   Securities, at Fair Value					11,003
Government Sponsored Entity   Securities, at Amortized Cost					133,749
Government Sponsored Entity Securities, at Fair Value					137,084

The following table is the schedule of Held-To-Maturity Securities at September 30, 2017, December 31, 2016 and September 30, 2016:

Held-To-Maturity Securities
	State and Municipal Obligations		Mortgage- Backed Securities - Residential		Corporate and Other Debt Securities		Total Held-To Maturity Securities
September 30, 2017
Held-To-Maturity Securities,   at Amortized Cost	$	277,738	$	63,788	$	—	$	341,526
Held-To-Maturity Securities,   at Fair Value	279,384		64,515		—		343,899
Gross Unrealized Gains	2,977		738		—		3,715
Gross Unrealized Losses	1,331		11		—		1,342
Held-To-Maturity Securities,   Pledged as Collateral							325,096
Maturities of Debt Securities,   at Amortized Cost:
Within One Year	$	39,609	$	—	$	—	$	39,609
From 1 - 5 Years	79,412		54,504		—		133,916
From 5 - 10 Years	154,981		9,284		—		164,265
Over 10 Years	3,736		—		—		3,736
Maturities of Debt Securities,   at Fair Value:
Within One Year	$	39,782	$	—	$	—	$	39,782
From 1 - 5 Years	80,944		55,120		—		136,064
From 5 - 10 Years	154,892		9,395		—		164,287
Over 10 Years	3,766		—		—		3,766
Securities in a Continuous   Loss Position, at Fair Value:
Less than 12 Months	$	78,238	$	3,544	$	—	$	81,782
12 Months or Longer	13,331		—		—		13,331
Total	$	91,569	$	3,544	$	—	$	95,113
Number of Securities in a   Continuous Loss Position	252		7		—		259
Unrealized Losses on Securities    in a Continuous Loss Position:
Less than 12 Months	$	1,034	$	11	$	—	$	1,045
12 Months or Longer	297		—		—		297
Total	$	1,331	$	11	$	—	$	1,342
Disaggregated Details:
US Government Agency   Securities, at Amortized Cost			$	2,792
US Government Agency   Securities, at Fair Value			2,799
Government Sponsored Entity   Securities, at Amortized Cost			60,996
Government Sponsored Entity Securities, at Fair Value			61,716

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
September 30, 2016
Held-To-Maturity Securities,   at Amortized Cost	$	257,255	$	79,983	$	1,000	$	338,238
Held-To-Maturity Securities,   at Fair Value	263,897		82,544		1,000		347,441
Gross Unrealized Gains	6,712		2,561		—		9,273
Gross Unrealized Losses	70		—		—		70
Held-To-Maturity Securities,   Pledged as Collateral							320.774
Securities in a Continuous   Loss Position, at Fair Value:
Less than 12 Months	$	11,891	$	—	$	—	$	11,891
12 Months or Longer	1,172		—		—		1,172
Total	$	13,063	$	—	$	—	$	13,063
Number of Securities in a   Continuous Loss Position	3		—		—		3
Unrealized Losses on   Securities in a Continuous   Loss Position:
Less than 12 Months	$	68	$	—	$	—	$	68
12 Months or Longer	2		—		—		2
Total	$	70	$	—	$	—	$	70

Held-To-Maturity Securities
	State and Municipal Obligations	Mortgage- Backed Securities - Residential		Corporate and Other Debt Securities	Total Held-To Maturity Securities
September 30, 2016
Disaggregated Details:
US Government Agency   Securities, at Amortized Cost		$	3,497
US Government Agency   Securities, at Fair Value		3,622
Government Sponsored Entity   Securities, at Amortized Cost		76,486
Government Sponsored Entity Securities, at Fair Value		78,922

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 September 30, 2017, December 31, 2016 and September 30, 2016, do not reflect any deterioration of the credit worthiness of the issuing entities.  U.S. Government and 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 September 30, 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 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.

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Loans

9 Months Ended

Sep. 30, 2017

Loans and Leases Receivable Disclosure [Abstract]

Loans

LOANS (In Thousands)

Loan Categories and Past Due Loans

The following table presents loan balances outstanding as of September 30, 2017, December 31, 2016 and September 30, 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 $1,323, $483 and $1,414 as of September 30, 2017, December 31, 2016 and September 30, 2016, respectively, are included in the residential real estate balances for current loans.

			Commercial
	Commercial		Real Estate		Consumer		Residential		Total
September 30, 2017
Loans Past Due 30-59 Days	$	122	$	442	$	4,781	$	1,675	$	7,020
Loans Past Due 60-89 Days	—		—		914		77		991
Loans Past Due 90 or more Days	102		807		291		1,742		2,942
Total Loans Past Due	224		1,249		5,986		3,494		10,953
Current Loans	125,136		439,467		586,043		747,200		1,897,846
Total Loans	$	125,360	$	440,716	$	592,029	$	750,694	$	1,908,799
Loans 90 or More Days Past Due   and Still Accruing Interest	$	—	$	—	$	41	$	926	$	967
Nonaccrual Loans	609		1,249		507		3,117		5,482
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		1,741,369
Total Loans	$	105,155	$	431,646	$	537,361	$	679,106	$	1,753,268
Loans 90 or More Days Past Due   and Still Accruing Interest	$	—	$	—	$	158	$	1,043	$	1,201
Nonaccrual Loans	$	155	$	875	$	589	$	2,574	4,193
September 30, 2016
Loans Past Due 30-59 Days	$	38	$	—	$	3,793	$	271	$	4,102
Loans Past Due 60-89 Days	67		—		1,412		1,450		2,929
Loans Past Due 90 or more Days	160		1,106		343		1,467		3,076
Total Loans Past Due	265		1,106		5,548		3,188		10,107
Current Loans	102,789		427,905		518,155		648,260		1,697,109
Total Loans	$	103,054	$	429,011	$	523,703	$	651,448	$	1,707,216
Loans 90 or More Days Past Due   and Still Accruing Interest	$	—	$	—	$	—	$	548	$	548
Nonaccrual Loans	$	160	$	3,689	$	532	$	1,726	6,107

The Company disaggregates its loan portfolio into the following four categories:

Commercial - The Company offers a variety of loan options to meet the specific needs of commercial customers including term loans, time notes and lines of credit. Such loans are made available to businesses for working capital needs such as inventory and receivables, business expansion and equipment purchases. Generally, a collateral lien is placed on equipment or other assets owned by the borrower. These loans carry a higher risk than commercial real estate loans due to the nature of the underlying collateral, which can be business assets such as equipment and accounts receivable and generally have a lower liquidation value than real estate. In the event of default by the borrower, the Company may be required to liquidate collateral at deeply discounted values. To reduce the risk, management usually obtains personal guarantees of the borrowers.

Commercial Real Estate - The Company offers commercial real estate loans to finance real estate purchases, refinancings, expansions and improvements to commercial properties. Commercial real estate loans are made to finance the purchases of real property which generally consists of real estate with completed structures. These commercial real estate loans are secured by first liens on the real estate, which may include apartments, commercial structures, housing businesses, healthcare facilities, and both owner- and non owner-occupied facilities. These loans are typically less risky than commercial loans, since they are secured by real estate and buildings, and are generally originated in amounts of no more than 80% of the appraised value of the property. However, the Company also offers commercial construction and land development loans to finance projects, primarily within the communities that we serve. Many projects will ultimately be used by the borrowers' businesses, while others are developed for resale. These real estate loans are also secured by first liens on the real estate, which may include apartments, commercial structures, housing business, healthcare facilities and both owner-occupied and non-owner-occupied facilities. There is enhanced risk during the construction period, since the loan is secured by an incomplete project.

Consumer Loans - The Company offers a variety of consumer installment loans to finance personal expenditures. Most of these loans carry a fixed rate of interest with principal repayment terms typically ranging from one to five years, based upon the nature of the collateral and the size of the loan. In addition to installment loans, the Company also offers personal lines of credit and overdraft protection. Several loans are unsecured, which carry a higher risk of loss. Also included in this category are automobile loans. The Company primarily finances the purchases of automobiles indirectly through dealer relationships located throughout upstate New York and Vermont. Most of these loans carry a fixed rate of interest with principal repayment terms typically ranging from three to seven years. Indirect consumer loans are underwritten on a secured basis using the underlying collateral being financed.

Residential Real Estate Mortgages - Residential real estate loans consist primarily of loans secured by first or second mortgages on primary residences. We originate adjustable-rate and fixed-rate one-to-four-family residential real estate loans for the construction, purchase or refinancing of an existing mortgage. These loans are collateralized primarily by owner-occupied properties generally located in the Company’s market area. Loans on one-to-four-family residential real estate are generally originated in amounts of no more than 85% of the purchase price or appraised value (whichever is lower), or have private mortgage insurance. The Company’s underwriting analysis for residential mortgage loans typically includes credit verification, independent appraisals, and a review of the borrower’s financial condition. Mortgage title insurance and hazard insurance are normally required. It is the Company's general practice to underwrite residential real estate loans to secondary market standards. Construction loans have a unique risk, because they are secured by an incomplete dwelling. This risk is reduced through periodic site inspections, including one at each loan draw period. In addition, the Company offers fixed home equity loans as well as home equity lines of credit to consumers to finance home improvements, debt consolidation, education and other uses.  Company policy allows for a maximum loan to value ratio of 80%, although periodically higher advances are allowed.  The Company originates home equity lines of credit and second mortgage loans (loans secured by a second junior lien position on one-to-four-family residential real estate).  Risk is generally reduced through underwriting criteria, which include credit verification, appraisals, a review of the borrower's financial condition, and personal cash flows.  A security interest, with title insurance when necessary, is taken in the underlying real estate.

Allowance for Loan Losses

The following table presents a roll-forward of the allowance for loan losses and other information pertaining to the allowance for loan losses:

Allowance for Loan Losses
				Commercial
	Commercial			Real Estate			Consumer			Residential			Unallocated			Total
Roll-forward of the Allowance for Loan Losses for the Quarterly Periods:
June 30, 2017	$	925		$	4,983		$	7,305		$	4,229		$	—		$	17,442
Charge-offs	—			(342		)	(280		)	—			—			(622		)
Recoveries	1			—			74			—			—			75
Provision	(46		)	446			509			(109		)	—			800
September 30, 2017	$	880		$	5,087		$	7,608		$	4,120		$	—		$	17,695
June 30, 2016	$	1,128		$	5,816		$	5,742		$	4,026		$	86		$	16,798
Charge-offs	(34		)	—			(243		)	(90		)	—			(367		)
Recoveries	5			—			59			—			—			64
Provision	(76		)	(75		)	513			166			(48		)	480
September 30, 2016	$	1,023		$	5,741		$	6,071		$	4,102		$	38		$	16,975

Allowance for Loan Losses
				Commercial
	Commercial			Real Estate			Consumer			Residential			Unallocated			Total
Roll-forward of the Allowance for Loan Losses for the Year-to-Date Periods:
December 31, 2016	$	1,017		$	5,677		$	6,120		$	4,198		$	—		$	17,012
Charge-offs	(2		)	(342		)	(847		)	(6		)	—			(1,197		)
Recoveries	8			—			292			—			—			300
Provision	(143		)	(248		)	2,043			(72		)	—			1,580
September 30, 2017	$	880		$	5,087		$	7,608		$	4,120		$	—		$	17,695
December 31, 2015	$	1,827		$	4,520		$	5,554		$	3,790		$	347		$	16,038
Charge-offs	(86		)	—			(591		)	(107		)	—			(784		)
Recoveries	20			—			150			1			—			171
Provision	(738		)	1,221			958			418			(309		)	1,550
September 30, 2016	$	1,023		$	5,741		$	6,071		$	4,102		$	38		$	16,975
September 30, 2017
Allowance for loan losses - Loans Individually Evaluated for Impairment	$	104		$	—		$	—		$	34		$	—		$	138
Allowance for loan losses - Loans Collectively Evaluated for Impairment	776			5,087			7,608			4,086			—			17,557
Ending Loan Balance - Individually Evaluated for Impairment	489			1,543			104			1,139			—			3,275
Ending Loan Balance - Collectively Evaluated for Impairment	$	124,871		$	439,172		$	591,925		$	749,556		$	—		$	1,905,524
December 31, 2016
Allowance for loan losses - Loans Individually Evaluated for Impairment	$	—		$	—		$	—		$	—		$	—		$	—
Allowance for loan losses - Loans Collectively Evaluated for Impairment	1,017			5,677			6,120			4,198			—			17,012
Ending Loan Balance - Individually Evaluated for Impairment	—			890			91			1,098			—			2,079
Ending Loan Balance - Collectively Evaluated for Impairment	$	105,155		$	430,756		$	537,270		$	678,008		$	—		$	1,751,189
September 30, 2016
Allowance for loan losses - Loans Individually Evaluated for Impairment	$	—		$	240		$	—		$	—		$	—		$	240
Allowance for loan losses - Loans Collectively Evaluated for Impairment	1,023			5,501			6,071			4,102			38			16,735
Ending Loan Balance - Individually Evaluated for Impairment	—			3,538			90			317			—			3,945
Ending Loan Balance - Collectively Evaluated for Impairment	$	103,054		$	425,473		$	523,613		$	651,131		$	—		$	1,703,271

Through the provision for loan losses, an allowance for loan losses is maintained that reflects the best estimate of the inherent risk of loss in the Company’s loan portfolio as of the balance sheet date. Additions are made to the allowance for loan losses through a periodic provision for loan losses. Actual loan losses are charged against the allowance for loan losses when loans are deemed uncollectible and recoveries of amounts previously charged off are recorded as credits to the allowance for loan losses.

Loan officers and risk managers meet at least quarterly to discuss and review the conditions and risks associated with certain criticized and classified commercial-related relationships. In addition, the independent internal loan review department performs periodic reviews of the risk ratings on individual loans in the commercial loan portfolio.

We use a two-step process to determine the provision for loan losses and the amount of the allowance for loan losses. We measure impairment of impaired loans on a quarterly basis. Impaired loans are generally nonaccrual loans over $250 thousand and all troubled debt restructured loans. Impaired loans are generally considered to be collateral dependent with the specific reserve, if any, determined based on the value of the collateral less estimated costs to sell.

The remainder of the portfolio is evaluated on a pooled basis. For each homogeneous loan pool, we estimate a total loss factor based on the historical net loss rates adjusted for applicable qualitative factors. We update the total loss factors assigned to each loan category on a quarterly basis. For the commercial and commercial real estate categories, we further segregate the loan categories by credit risk profile (pools of loans graded satisfactory, special mention and substandard). Additional description of the credit risk classifications is detailed in the Credit Quality Indicators section of this note.

We determine the annualized historical net loss rate for each loan category using a trailing three-year net charge-off average. We then apply a loss emergence period factor to the historical net loss rate to account for the time it takes to identify the loss after a loss-causing event. While historical net loss experience provides a reasonable starting point for analysis, historical net losses, or even recent trends in net losses, do not by themselves form a sufficient basis to determine the appropriate level of the allowance for loan losses. Therefore, we also consider and adjust historical net loss factors for qualitative factors that impact the inherent risk of loss associated with the loan categories within the total loan portfolio. These include:

• Changes in the volume and severity of past due, nonaccrual and adversely classified loans

• Changes in the nature and volume of the portfolio and in the terms of loans

• Changes in the value of the underlying collateral for collateral dependent loans

• Changes in lending policies and procedures, including changes in underwriting standards and collection, charge-off, and recovery practices not considered elsewhere in estimating credit losses

• Changes in the quality of the loan review system

• Changes in the experience, ability, and depth of lending management and other relevant staff

• Changes in international, national, regional, and local economic and business conditions and developments that affect the collectibility of the portfolio

• The existence and effect of any concentrations of credit, and changes in the level of such concentrations

• The effect of other external factors such as competition and legal and regulatory requirements on the level of estimated credit losses in the  existing portfolio or pool

While not a significant part of the allowance for loan losses methodology, in 2016, we maintained an unallocated portion of the total allowance for loan losses related to the overall level of imprecision inherent in the estimation of the appropriate level of allowance for loan losses.

Credit Quality Indicators

The following table presents the credit quality indicators by loan category at September 30, 2017, December 31, 2016 and September 30, 2016:

Loan Credit Quality Indicators
			Commercial
	Commercial		Real Estate		Consumer		Residential		Total
September 30, 2017
Credit Risk Profile by Creditworthiness Category:
Satisfactory	$	120,622	$	411,685	$	—	$	—	$	532,307
Special Mention	1,394		1,401		—		—		2,795
Substandard	3,344		26,822		—		—		30,166
Doubtful	—		807		—		—		807
Credit Risk Profile Based on Payment Activity:
Performing	$	—	$	—	$	591,499	$	746,652	$	1,338,151
Nonperforming	—		—		530		4,043		4,573
December 31, 2016
Credit Risk Profile by Creditworthiness Category:
Satisfactory	$	95,722	$	396,907	$	—	$	—	$	492,629
Special Mention	1,359		7,008		—		—		8,367
Substandard	8,074		27,731		—		—		35,805
Doubtful	—		—		—		—		—
Credit Risk Profile Based on Payment Activity:
Performing	$	—	$	—	$	536,614	$	675,489	$	1,212,103
Nonperforming	—		—		747		3,617		4,364
September 30, 2016
Credit Risk Profile by Creditworthiness Category:
Satisfactory	$	93,903	$	392,697	$	—	$	—	$	486,600
Special Mention	1,274		10,472		—		—		11,746
Substandard	7,877		25,842		—		—		33,719
Doubtful	—		—		—		—		—
Credit Risk Profile Based on Payment Activity:
Performing	$	—	$	—	$	523,171	$	649,093	$	1,172,264
Nonperforming	—		—		532		2,355		2,887

We use an internally developed system of five credit quality indicators to rate the credit worthiness of each commercial loan defined as follows: 1) Satisfactory - "Satisfactory" borrowers have acceptable financial condition with satisfactory record of earnings and sufficient historical and projected cash flow to service the debt.  Borrowers have satisfactory repayment histories and primary and secondary sources of repayment can be clearly identified; 2) Special Mention - Loans in this category have potential weaknesses that deserve management’s close attention.  If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the institution’s credit position at some future date.  "Special mention" assets are not adversely classified and do not expose an institution to sufficient risk to warrant adverse classification.  Loans which might be assigned this risk rating include loans to borrowers with deteriorating financial strength and/or earnings record and loans with potential for problems due to weakening economic or market conditions; 3) Substandard - Loans classified as “substandard” are inadequately protected by the current sound net worth or paying capacity of the borrower or the collateral pledged, if any.  Loans in this category have well defined weaknesses that jeopardize the repayment.  They are characterized by the distinct possibility that the bank will sustain some loss if the deficiencies are not corrected.  “Substandard” loans may include loans which are likely to require liquidation of collateral to effect repayment, and other loans where character or ability to repay has become suspect. Loss potential, while existing in the aggregate amount of substandard assets, does not have to exist in individual assets classified substandard; 4) Doubtful - Loans classified as “doubtful” have all of the weaknesses inherent in those classified as “substandard” with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of current existing facts, conditions, and values highly questionable and improbable.  Although possibility of loss is extremely high, classification of these loans as “loss” has been deferred due to specific pending factors or events which may strengthen the value (i.e. possibility of additional collateral, injection of capital, collateral liquidation, debt restructure, economic recovery, etc).  Loans classified as “doubtful” need to be placed on non-accrual; and 5) Loss - Loans classified as “loss” are considered uncollectible and of such little value that their continuance as a bankable asset is not warranted.  As of the date of the balance sheet, all loans in this category have been charged-off to the allowance for loan losses.  Large commercial loans are evaluated on an annual basis, unless the credit quality indicator falls to a level of "special mention" or below, when the loan is evaluated quarterly.  The credit quality indicator is one of the factors used to determine any loss, as further described in this footnote.

For the purposes of the table above, nonperforming consumer and residential loans are those loans on nonaccrual status or are 90 days or more past due and still accruing interest.

Impaired Loans

The following table presents information on impaired loans based on whether the impaired loan has a recorded related allowance or has no recorded related allowance:

Impaired Loans
			Commercial
	Commercial		Real Estate		Consumer		Residential		Total
September 30, 2017
Recorded Investment:
With No Related Allowance	$	—	$	818	$	104	$	851	$	1,773
With a Related Allowance	489		725		—		288		1,502
Unpaid Principal Balance:
With No Related Allowance	—		818		90		850		1,758
With a Related Allowance	489		723		—		288		1,500
December 31, 2016
Recorded Investment:
With No Related Allowance	$	—	$	890	$	91	$	1,098	$	2,079
With a Related Allowance	—		—		—		—		—
Unpaid Principal Balance:
With No Related Allowance	—		890		91		1,098		2,079
With a Related Allowance	—		—		—		—		—
September 30, 2016
Recorded Investment:
With No Related Allowance	$	—	$	898	$	90	$	317	$	1,305
With a Related Allowance	—		2,640		—		—		2,640
Unpaid Principal Balance:
With No Related Allowance	—		898		90		317		$	1,305
With a Related Allowance	—		2,640		—		—		2,640
For the Quarter Ended:
September 30, 2017
Average Recorded Balance:
With No Related Allowance	$	—	$	998	$	96	$	827	$	1,921
With a Related Allowance	496		363		—		288		1,147
Interest Income Recognized:
With No Related Allowance	—		—		1		—		1
With a Related Allowance	—		—		—		—		—
Cash Basis Income:
With No Related Allowance	—		—		—		—		—
With a Related Allowance	—		—		—		—		—
September 30, 2016
Average Recorded Balance:
With No Related Allowance	$	—	$	1,374	$	92	$	479	$	1,945
With a Related Allowance	—		2,166		—		—		2,166
Interest Income Recognized:
With No Related Allowance	—		3		2		—		5
With a Related Allowance	—		—		—		—		—
Cash Basis Income:
With No Related Allowance	—		—		—		—		—
With a Related Allowance	—		—		—		—		—

Impaired Loans
			Commercial
	Commercial		Real Estate		Consumer		Residential		Total
For the Year-To-Date Period Ended:
September 30, 2017
Average Recorded Balance:
With No Related Allowance	$	—	$	854	$	98	$	975	$	1,927
With a Related Allowance	245		363		—		144		752
Interest Income Recognized:
With No Related Allowance	—		—		3		—		3
With a Related Allowance	—		—		—		4		4
Cash Basis Income:
With No Related Allowance	—		—		—		—		—
With a Related Allowance	—		—		—		—		—
September 30, 2016
Average Recorded Balance:
With No Related Allowance	$	78	$	1,635	$	102	$	481	$	2,296
With a Related Allowance	—		1,320		—		—		1,320
Interest Income Recognized:
With No Related Allowance	—		14		4		—		18
With a Related Allowance	—		—		—		—		—
Cash Basis Income:
With No Related Allowance	—		—		—		—		—
With a Related Allowance	—		—		—		—		—

At September 30, 2017, December 31, 2016 and September 30, 2016, all impaired loans were considered to be collateral dependent and were therefore evaluated for impairment based on the fair value of collateral less estimated cost to sell. Interest income recognized in the table above, represents income earned after the loans became impaired and includes restructured loans in compliance with their modified terms and nonaccrual loans where we have recognized interest income on a cash basis.

Loans Modified in Trouble Debt Restructurings

The following table presents information on loans modified in trouble debt restructurings during the periods indicated. All loans were modified under Arrow's own programs. The principal modification, for all the modifications in the table below, involved payment deferrals.

Loans Modified in Trouble Debt Restructurings During the Period
			Commercial
	Commercial		Real Estate		Consumer		Residential		Total
For the Quarter Ended:
September 30, 2017
Number of Loans	1		—		2		—		3
Pre-Modification Outstanding Recorded Investment	$	725	$	—	$	25	$	—	$	750
Post-Modification Outstanding Recorded Investment	725		—		25		—		750
Subsequent Default, Number of Contracts	—		—		—		—		—
Subsequent Default, Recorded Investment	—		—		—		—		—
September 30, 2016
Number of Loans	—		—		1		—		1
Pre-Modification Outstanding Recorded Investment	$	—	$	—	$	15	$	—	$	15
Post-Modification Outstanding Recorded Investment	—		—		15		—		15
Subsequent Default, Number of Contracts	—		—		—		—		—
Subsequent Default, Recorded Investment	—		—		—		—		—
For the Year-To-Date Period Ended:
September 30, 2017
Number of Loans	2		—		6		—		8
Pre-Modification Outstanding Recorded Investment	$	1,228	$	—	$	51	$	—	$	1,279
Post-Modification Outstanding Recorded Investment	1,228		—		51		—		1,279
Subsequent Default, Number of Contracts	—		—		—		—		—
Subsequent Default, Recorded Investment	—		—		—		—		—
September 30, 2016
Number of Loans	—		—		2		—		2
Pre-Modification Outstanding Recorded Investment	$	—	$	—	$	23	$	—	$	23
Post-Modification Outstanding Recorded Investment	—		—		23		—		23
Subsequent Default, Number of Contracts	—		—		—		—		—
Subsequent Default, Recorded Investment	—		—		—		—		—

In general, loans requiring modification are restructured to accommodate the projected cashflows of the borrower. No loans modified during the preceding twelve months subsequently defaulted as of September 30, 2017. In addition, no commitments have been made to extend credit to borrowers whose loans have been modified in a troubled debt restructuring.

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Guarantees

9 Months Ended

Sep. 30, 2017

Guarantees [Abstract]

Guarantees

GUARANTEES (In Thousands)

The following table presents the balance for commitments to extend credit and standby letters of credit for the periods ended September 30, 2017, December 31, 2016 and September 30, 2016:

Commitments to Extend Credit and Letters of Credit
	September 30, 2017		December 31, 2016		September 30, 2016
Notional Amount:
Commitments to Extend Credit	$	316,449	$	296,442	$	300,439
Standby Letters of Credit	3,672		3,445		3,483
Fair Value:
Commitments to Extend Credit	$	—	$	—	$	—
Standby Letters of Credit	18		30		31

Arrow is party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers.  These financial instruments include commitments to extend credit and standby letters of credit.  Commitments to extend credit include home equity lines of credit, commitments for residential and commercial construction loans and other personal and commercial lines of credit.  These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets.  The contract or notional amounts of those instruments reflect the extent of the involvement Arrow has in particular classes of financial instruments.

Arrow's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual notional amount of those instruments.  Arrow uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments.

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract.  Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee.  Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.  Arrow evaluates each customer's creditworthiness on a case-by-case basis.  Home equity lines of credit are secured by residential real estate.  Construction commitments are secured by underlying real estate.  For other lines of credit, the amount of collateral obtained, if deemed necessary by Arrow upon extension of credit, is based on management's credit evaluation of the counterparty.  Collateral held varies, but may include accounts receivable, inventory, property, plant and equipment, and income-producing commercial properties.  Most of the commitments are variable rate instruments.

Arrow has issued conditional commitments in the form of standby letters of credit to guarantee payment on behalf of a customer and guarantee the performance of a customer to a third party.  Standby letters of credit generally arise in connection with lending relationships. The credit risk involved in issuing these instruments is essentially the same as that involved in extending loans to customers. Contingent obligations under standby letters of credit at September 30, 2017, December 31, 2016 and September 30, 2016 represent the maximum potential future payments Arrow could be required to make.  Typically, these instruments have terms of 12 months or less and expire unused; therefore, the total amounts do not necessarily represent future cash requirements.  Each customer is evaluated individually for creditworthiness under the same underwriting standards used for commitments to extend credit and on-balance sheet instruments. Company policies governing loan collateral apply to standby letters of credit at the time of credit extension.  Loan-to-value ratios generally range from 50% for movable assets, such as inventory, to 100% for liquid assets, such as bank CD's.  Fees for standby letters of credit typically range from 1% to 3% of the notional amount.  Fees are collected upfront and are amortized over the life of the commitment. The fair values of Arrow's standby letters of credit at September 30, 2017, December 31, 2016 and September 30, 2016, in the table above, were the same as the carrying amounts.  The fair value of standby letters of credit is based on the fees currently charged for similar agreements or the cost to terminate the arrangement with the counterparties.

The fair value of commitments to extend credit is determined by estimating the fees to enter into similar agreements, taking into account the remaining terms and present creditworthiness of the counterparties, and for fixed rate loan commitments, the difference between the current and committed interest rates.  Arrow provides several types of commercial lines of credit and standby letters of credit to its commercial customers.  The pricing of these services is not isolated, as Arrow considers the customer's complete deposit and borrowing relationship in pricing individual products and services.  The commitments to extend credit also include commitments under home equity lines of credit, for which Arrow charges no fee.  The carrying value and fair value of commitments to extend credit are not material and Arrow does not expect to incur any material loss as a result of these commitments.

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Comprehensive Income

9 Months Ended

Sep. 30, 2017

Other Comprehensive Income (Loss), Net of Tax [Abstract]

Comprehensive Income

COMPREHENSIVE INCOME (In Thousands)

The following table presents the components of other comprehensive income for the three-month period ended September 30, 2017 and 2016:

Schedule of Comprehensive Income
	Three Months Ended September 30,									Nine Months Ended September 30,
				Tax									Tax
	Before-Tax			(Expense)			Net-of-Tax			Before-Tax			(Expense)			Net-of-Tax
	Amount			Benefit			Amount			Amount			Benefit			Amount
2017
Net Unrealized Securities Holding (Losses) Gains Arising During the Period	6			$	3		9			749			$	(284	)	465
Reclassification Adjustment for Securities Gains Included in Net Income	(10		)	4			(6		)	(10		)	4			(6		)
Amortization of Net Retirement Plan Actuarial Loss	179			(115		)	64			537			(292		)	245
Accretion of Net Retirement Plan Prior Service Credit	(3		)	1			(2		)	(8		)	3			(5		)
Other Comprehensive Income (Loss)	$	172		$	(107	)	$	65		$	1,268		$	(569	)	$	699
2016
Net Unrealized Securities Holding Gains (Losses) Arising During the Period	(1,264		)	$	454		(810		)	3,868			$	(1,559	)	2,309
Reclassification Adjustment for Securities Gains Included in Net Income	—			—			—			(144		)	56			(88		)
Amortization of Net Retirement Plan Actuarial Loss	181			(70		)	111			503			(189		)	314
Accretion of Net Retirement Plan Prior Service Credit	(3		)	2			(1		)	(7		)	2			(5		)
Other Comprehensive Income (Loss)	$	(1,086	)	$	386		$	(700	)	$	4,220		$	(1,690	)	$	2,530

The following table presents the changes in accumulated other comprehensive income by component:

Changes in Accumulated Other Comprehensive Income (Loss) by Component (1)
	Unrealized			Defined Benefit Plan Items
	Gains and
	Losses on						Net Prior
	Available-for-			Net Gain			Service
	Sale Securities			(Loss)			(Cost ) Credit			Total
For the Quarter-To-Date periods ended:
June 30, 2017	$	74		$	(5,556	)	$	(718	)	$	(6,200	)
Other comprehensive income or loss before reclassifications	9			—			—			9
Amounts reclassified from accumulated other comprehensive income	(6		)	64			(2		)	56
Net current-period other comprehensive income	3			64			(2		)	65
September 30, 2017	$	77		$	(5,492	)	$	(720	)	$	(6,135	)
June 30, 2016	$	3,660		$	(7,690	)	$	(712	)	$	(4,742	)
Other comprehensive income or loss before reclassifications	(810		)	—			—			(810		)
Amounts reclassified from accumulated other comprehensive income	—			111			(1		)	110
Net current-period other comprehensive income	(810		)	111			(1		)	(700		)
September 30, 2016	$	2,850		$	(7,579	)	$	(713	)	$	(5,442	)
For the Year-To-Date periods ended:
December 31, 2016	$	(382	)	$	(5,737	)	$	(715	)	$	(6,834	)
Other comprehensive income or loss before reclassifications	465			—			—			465
Amounts reclassified from accumulated other comprehensive income	(6		)	245			(5		)	234
Net current-period other comprehensive income	459			245			(5		)	699
September 30, 2017	$	77		$	(5,492	)	$	(720	)	$	(6,135	)
December 31, 2015	$	629		$	(7,893	)	$	(708	)	$	(7,972	)
Other comprehensive income or loss before reclassifications	2,309			—			—			2,309
Amounts reclassified from accumulated other comprehensive income	(88		)	314			(5		)	221
Net current-period other comprehensive income	2,221			314			(5		)	2,530
September 30, 2016	$	2,850		$	(7,579	)	$	(713	)	$	(5,442	)

(1) All amounts are net of tax. Amounts in parentheses indicate debits.

The following table presents the reclassifications out of accumulated other comprehensive income:

Reclassifications Out of Accumulated Other Comprehensive Income (1)
	Amounts Reclassified
Details about Accumulated Other	from Accumulated Other				Affected Line Item in the Statement
Comprehensive Income (Loss) Components	Comprehensive Income				Where Net Income Is Presented
For the Quarter-to-date periods ended:
September 30, 2017
Unrealized gains and losses on available-for-sale securities	$	10			Gain on Securities Transactions
	10				Total before Tax
	(4		)		Provision for Income Taxes
	$	6			Net of Tax
Amortization of defined benefit pension items:
Prior-service costs	$	3		(2)	Salaries and Employee Benefits
Actuarial gains/(losses)	(179		)	(2)	Salaries and Employee Benefits
	(176		)		Total before Tax
	114				Provision for Income Taxes
	$	(62	)		Net of Tax
Total reclassifications for the period	$	(56	)		Net of Tax
September 30, 2016
Unrealized gains and losses on available-for-sale securities	$	—			Gain on Securities Transactions
	—				Total before Tax
	—				Provision for Income Taxes
	$	—			Net of Tax
Amortization of defined benefit pension items:
Prior-service costs	$	3		(2)	Salaries and Employee Benefits
Actuarial gains/(losses)	(181		)	(2)	Salaries and Employee Benefits
	(178		)		Total before Tax
	68				Provision for Income Taxes
	$	(110	)		Net of Tax
Total reclassifications for the period	$	(110	)		Net of Tax
For the Year-to-date periods ended:
September 30, 2017
Unrealized gains and losses on available-for-sale securities	$	10			Gain on Securities Transactions
	10				Total before Tax
	(4		)		Provision for Income Taxes
	$	6			Net of Tax
Amortization of defined benefit pension items:
Prior-service costs	$	8		(2)	Salaries and Employee Benefits
Actuarial gains/(losses)	(537		)	(2)	Salaries and Employee Benefits
	(529		)		Total before Tax
	289				Provision for Income Taxes
	$	(240	)		Net of Tax
Total reclassifications for the period	$	(234	)		Net of Tax

Reclassifications Out of Accumulated Other Comprehensive Income (1)
	Amounts Reclassified
Details about Accumulated Other	from Accumulated Other				Affected Line Item in the Statement
Comprehensive Income (Loss) Components	Comprehensive Income				Where Net Income Is Presented
September 30, 2016
Unrealized gains and losses on available-for-sale securities	$	144			Gain on Securities Transactions
	144				Total before Tax
	(56		)		Provision for Income Taxes
	$	88			Net of Tax
Amortization of defined benefit pension items:
Prior-service costs	7			(2)	Salaries and Employee Benefits
Actuarial gains/(losses)	$	(503	)	(2)	Salaries and Employee Benefits
	(496		)		Total before Tax
	187				Provision for Income Taxes
	$	(309	)		Net of Tax
Total reclassifications for the period	$	(221	)		Net of Tax

(1) Amounts in parentheses indicate debits to profit/loss.

(2) These accumulated other comprehensive income components are included in the computation of net periodic pension cost.

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Stock Based Compensation Plans

9 Months Ended

Sep. 30, 2017

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Stock Based Compensation Plans

STOCK BASED COMPENSATION PLANS

Under the 2013 Long-Term Incentive Plan, Arrow granted options in the first quarter of 2017 to purchase shares of common stock. The fair values of the options were estimated on the date of grant using the Black-Scholes option-pricing model. The fair value of grants is expensed over the four year vesting period.

The following table presents a roll-forward of stock option plans and grants issued during 2017:

Schedule of Share-based Compensation Arrangements
	Stock Option Plans
Roll-Forward of Shares Outstanding:
Outstanding at January 1, 2017	366,329
Granted	55,621
Exercised	(35,937		)
Forfeited	—
Outstanding at September 30, 2017	386,013
Exercisable at Period-End	242,706
Vested and Expected to Vest	143,307
Roll-Forward of Shares Outstanding - Weighted Average Exercise Price:
Outstanding at January 1, 2017	$	21.86
Granted	36.12
Exercised	20.46
Forfeited	—
Outstanding at September 30, 2017	24.05
Exercisable at Period-End	21.34
Vested and Expected to Vest	28.62
Grants Issued During 2017 - Weighted Average Information:
Fair Value	$	6.25
Fair Value Assumptions:
Dividend Yield	2.72		%
Expected Volatility	21.40		%
Risk Free Interest Rate	2.25		%
Expected Lives (in years)	6.88

The following table presents information on the amounts expensed for the periods ended September 30, 2017 and 2016:

Share-Based Compensation Expense
	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2017		2016		2017		2016
Share-Based Compensation Expense	$	90	$	71	$	262	$	215

Arrow also sponsors an Employee Stock Purchase Plan 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.

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Retirement Plans

9 Months Ended

Sep. 30, 2017

Defined Benefit Pension Plans and Defined Benefit Postretirement Plans Disclosure [Abstract]

Retirement Plans

RETIREMENT PLANS (Dollars in Thousands)

The following tables provide the components of net periodic benefit costs for the three and nine-month periods ended September 30, 2017 and 2016.

				Select
	Employees'			Executive		Postretirement
	Pension			Retirement		Benefit
	Plan			Plan		Plans
Net Periodic Benefit Cost
For the Three Months Ended September 30, 2017:
Service Cost	$	350		$	10	$	37
Interest Cost	362			55		75
Expected Return on Plan Assets	(800		)	—		—
Amortization of Prior Service (Credit) Cost	(14		)	14		(3		)
Amortization of Net Loss	148			31		—
Net Periodic Benefit Cost	$	46		$	110	$	109
Plan Contributions During the Period	$	—		$	116	$	65
For the Three Months Ended September 30, 2016:
Service Cost	$	376		$	8	$	63
Interest Cost	420			56		83
Expected Return on Plan Assets	(828		)	—		—
Amortization of Prior Service (Credit) Cost	(14		)	14		(3		)
Amortization of Net Loss	140			28		—
Net Periodic Benefit Cost	$	94		$	106	$	143
Plan Contributions During the Period	$	—		$	131	$	47
Net Periodic Benefit Cost
For the Nine Months Ended September 30, 2017:
Service Cost	$	1,050		$	30	$	110
Interest Cost	1,085			164		224
Expected Return on Plan Assets	(2,399		)	—		—
Amortization of Prior Service Cost (Credit)	(43		)	43		(8		)
Amortization of Net Loss	443			94		—
Net Periodic Benefit Cost	$	136		$	331	$	326
Plan Contributions During the Period	$	—		$	345	$	295
Estimated Future Contributions in the Current Fiscal Year	$	—		$	115	$	98
For the Nine Months Ended September 30, 2016:
Service Cost	$	1,127		$	24	$	188
Interest Cost	1,262			163		178
Expected Return on Plan Assets	(2,483		)	—		—
Amortization of Prior Service (Credit) Cost	(42		)	43		(8		)
Amortization of Net Loss	419			84		—
Net Periodic Benefit Cost	$	283		$	314	$	358
Plan Contributions During the Period	$	—		$	350	$	197

We were not required to make a contribution to the qualified pension plan in 2017, and currently, we do not expect to make additional contributions in 2017. Arrow makes contributions to its other post-retirement benefit plans in an amount equal to benefit payments for the year.

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Earnings Per Common Share

9 Months Ended

Sep. 30, 2017

Earnings Per Share [Abstract]

Earnings Per Common Share

EARNINGS PER COMMON SHARE (In Thousands, Except Per Share Amounts)

The following table presents a reconciliation of the numerator and denominator used in the calculation of basic and diluted earnings per common share (“EPS”) for periods ended September 30, 2017 and 2016.  All share and per share amounts have been adjusted for the September 28, 20173% stock dividend.

Earnings Per Share
	Quarterly Period Ended:				Year-to-Date Period Ended:
	September 30, 2017		September 30, 2016		September 30, 2017		September 30, 2016
Earnings Per Share - Basic:
Net Income	$	7,416	$	6,738	$	21,255	$	19,934
Weighted Average Shares - Basic	13,889		13,810		13,889		13,775
Earnings Per Share - Basic	$	0.53	$	0.49	$	1.53	$	1.45
Earnings Per Share - Diluted:
Net Income	$	7,416	$	6,738	$	21,255	$	19,934
Weighted Average Shares - Basic	13,889		13,810		13,889		13,775
Dilutive Average Shares Attributable to Stock Options	77		91		92		67
Weighted Average Shares - Diluted	13,966		13,901		13,981		13,842
Earnings Per Share - Diluted	$	0.53	$	0.48	$	1.52	$	1.44

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Fair Value of Financial Instruments

9 Months Ended

Sep. 30, 2017

Fair Value Disclosures [Abstract]

Fair Value of Financial Instruments

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 on a recurring basis. The only assets or liabilities that Arrow measured at fair value on a recurring basis at September 30, 2017, December 31, 2016 and September 30, 2016 were securities available-for-sale. Arrow held no securities or liabilities for trading on such dates.

The table below presents the financial instrument's fair value and the amounts within the fair value hierarchy based on the lowest level of input that is significant to the fair value measurement:

Fair Value of Assets and Liabilities Measured on a Recurring and Nonrecurring Basis
			Fair Value Measurements at Reporting Date Using:
	Fair Value		Quoted Prices In Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Gains (Losses)
Fair Value of Assets and Liabilities Measured on a Recurring Basis:
September 30, 2017
Securities Available-for Sale:
U.S. Government & Agency Obligations	$	146,978	$	64,730	$	82,248	$	—
State and Municipal Obligations	11,902		—		11,902		—
Mortgage-Backed Securities - Residential	152,806		—		152,806		—
Corporate and Other Debt Securities	2,299		—		2,299		—
Mutual Funds and Equity Securities	1,474		—		1,474		—
Total Securities Available-for-Sale	$	315,459	$	64,730	$	250,729	$	—
December 31, 2016
Securities Available-for Sale:
U.S. Government & Agency Obligations	$	147,377	$	54,706	$	92,671	$	—
State and Municipal Obligations	27,690		—		27,690		—
Mortgage-Backed Securities - Residential	167,239		—		167,239		—
Corporate and Other Debt Securities	3,308		—		3,308		—
Mutual Funds and Equity Securities	1,382		—		1,382		—
Total Securities Available-for Sale	$	346,996	$	54,706	$	292,290	$	—
September 30, 2016
Securities Available-for Sale:
U.S. Government & Agency Obligations	$	153,926	$	—	$	153,926	$	—
State and Municipal Obligations	31,628		—		31,628		—
Mortgage-Backed Securities - Residential	148,087		—		148,087		—
Corporate and Other Debt Securities	4,299		—		4,299		—
Mutual Funds and Equity Securities	1,250		—		1,250		—
Total Securities Available-for Sale	$	339,190	$	—	$	339,190	$	—
Fair Value of Assets and Liabilities Measured on a Nonrecurring Basis:
September 30, 2017
Collateral Dependent Impaired Loans	$	1,502	$	—	$	—	$	1,502	$	(138	)
Other Real Estate Owned and Repossessed Assets, Net	1,713		—		—		1,713		(655		)
December 31, 2016
Collateral Dependent Impaired Loans	$	—	$	—	$	—	$	—	$	—
Other Real Estate Owned and Repossessed Assets, Net	$	1,686	$	—	—		1,686		$	(587	)
September 30, 2016
Collateral Dependent Impaired Loans	$	2,640	$	—	$	—	$	2,640	$	(240	)
Other Real Estate Owned and Repossessed Assets, Net	1,016		—		—		1,016		(319		)

We determine the fair value of financial instruments under the following hierarchy:

• Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

• Level 2 - Quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability; and

• Level 3 - Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).

There were no transfers between Levels 1, 2 and 3 for the three months ended September 30, 2017, December 31, 2016 and September 30, 2016.

Fair Value Methodology for Assets and Liabilities Measured on a Recurring Basis

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.  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 Value Methodology for Assets and Liabilities Measured on a Nonrecurring Basis

The Company uses the fair value of underlying collateral to estimate the specific reserves for collateral dependent impaired loans. The fair value of underlying collateral is generally determined through independent appraisals, which generally include various Level 3 inputs which are not identifiable. The appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses ranging from 15% to 25%. Based on the valuation techniques used, the fair value measurements for collateral dependent impaired loans are classified as Level 3. 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 September 30, 2017, December 31, 2016 and September 30, 2016.

Fair Value by Balance Sheet Grouping

The following table presents a summary of the carrying amount, the fair value or an amount approximating fair value and the fair value hierarchy of Arrow’s financial instruments:

Schedule of Fair Values by Balance Sheet Grouping
					Fair Value Hierarchy
	Carrying Amount		Fair Value		Level 1		Level 2		Level 3
September 30, 2017
Cash and Cash Equivalents	$	80,666	$	80,666	$	80,666	$	—	$	—
Securities Available-for-Sale	315,459		315,459		64,730		250,729		—
Securities Held-to-Maturity	341,526		343,899		—		343,899		—
Federal Home Loan Bank and Federal   Reserve Bank Stock	6,704		6,704		—		6,704		—
Net Loans	1,891,104		1,870,379		—		—		1,870,379
Accrued Interest Receivable	7,692		7,692		—		7,692		—
Deposits	2,307,116		2,299,011		—		2,299,011		—
Federal Funds Purchased and Securities   Sold Under Agreements to Repurchase	61,419		61,419		—		61,419		—
Federal Home Loan Bank Overnight Advances	33,000		33,000		—		33,000		—
Federal Home Loan Bank Term Advances	55,000		55,110		—		55,110		—
Junior Subordinated Obligations Issued   to Unconsolidated Subsidiary Trusts	20,000		20,000		—		20,000		—
Accrued Interest Payable	260		260		—		260		—
December 31, 2016
Cash and Cash Equivalents	$	57,355	$	57,355	$	57,355	$	—	$	—
Securities Available-for-Sale	346,996		346,996		54,706		292,290		—
Securities Held-to-Maturity	345,427		343,751		—		343,751		—
Federal Home Loan Bank and Federal   Reserve Bank Stock	10,912		10,912		—		10,912		—
Net Loans	1,736,256		1,720,078		—		—		1,720,078
Accrued Interest Receivable	6,684		6,684		—		6,684		—
Deposits	2,116,546		2,109,557		—		2,109,557		—
Federal Funds Purchased and Securities   Sold Under Agreements to Repurchase	35,836		35,836		—		35,836		—
Federal Home Loan Bank Overnight Advances	123,000		123,000		—		123,000		—
Federal Home Loan Bank Term Advances	55,000		55,118		—		55,118		—
Junior Subordinated Obligations Issued   to Unconsolidated Subsidiary Trusts	20,000		20,000		—		20,000		—
Accrued Interest Payable	247		247		—		247		—
September 30, 2016
Cash and Cash Equivalents	$	102,059	$	102,059	$	102,059	$	—	$	—
Securities Available-for-Sale	339,190		339,190		—		339,190		—
Securities Held-to-Maturity	338,238		347,441		—		347,441		—
Federal Home Loan Bank and Federal   Reserve Bank Stock	5,371		5,371		—		5,371		—
Net Loans	1,690,241		1,696,929		—		—		1,696,929
Accrued Interest Receivable	7,046		7,046		—		7,046		—
Deposits	2,213,187		2,207,985		—		2,207,985		—
Federal Funds Purchased and Securities   Sold Under Agreements to Repurchase	38,589		38,589		—		38,589		—
Federal Home Loan Bank Overnight Advances	—		—		—		—		—
Federal Home Loan Bank Term Advances	55,000		55,955		—		55,955		—
Junior Subordinated Obligations Issued   to Unconsolidated Subsidiary Trusts	20,000		20,000		—		20,000		—
Accrued Interest Payable	247		247		—		247		—

Fair Value Methodology for Financial Instruments Not Measured on a Recurring or Nonrecurring Basis

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 Federal Home Loan Bank of New York (FHLBNY) yield curve, which is considered representative of Arrow’s time deposit rates. The fair value of all other deposits is equal to the carrying value.

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.

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Accounting Policies Significant Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2017

Accounting Policies [Abstract]

New Accounting Standards Updates

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 flows.

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 nine months ended September 30, 2017, which resulted in an increase in earnings of approximately $112 thousand, representing earnings per share of less than $0.01.

In addition, during 2017, through the date of this report, the FASB issued 13 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 are currently in the process of identifying any required changes to our revenue recognition policies. 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 September 30, 2017, we hold $1.5 million of fair value in 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 September 30, 2017, we have less than $2.6 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 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.

ASU 2017-09 "Compensation-Stock Compensation" provides guidance about which changes to the terms and conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. The guidance highlights the requirements for applying modification accounting and the exception criteria relating to changes in share-based payment terms. For Arrow, the standard becomes effective in the first quarter of 2018, however, early adoption is permitted as early as the third quarter of 2017. We do not expect that the adoption of this change in accounting for share-based payment awards will have a material impact on our financial position or the results of operations in periods subsequent to its adoption.

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Investment Securities (Tables)

9 Months Ended

Sep. 30, 2017

Investments, Debt and Equity Securities [Abstract]

Available-For-Sale Securities

The following table is the schedule of Available-For-Sale Securities at September 30, 2017, December 31, 2016 and September 30, 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
September 30, 2017
Available-For-Sale Securities,   at Amortized Cost	$	146,976	$	11,875	$	152,858	$	2,500	$	1,120	$	315,329
Available-For-Sale Securities,   at Fair Value	146,978		11,902		152,806		2,299		1,474		315,459
Gross Unrealized Gains	152		27		964		—		354		1,497
Gross Unrealized Losses	150		—		1,016		201		—		1,367
Available-For-Sale Securities,   Pledged as Collateral											206,637
Maturities of Debt Securities,   at Amortized Cost:
Within One Year	$	—	$	9,068	$	3,649	$	1,500			$	14,217
From 1 - 5 Years	146,976		1,890		114,127		—				262,993
From 5 - 10 Years	—		397		35,082		—				35,479
Over 10 Years	—		520		—		1,000				1,520
Maturities of Debt Securities,   at Fair Value:
Within One Year	$	—	$	9,076	$	3,691	$	1,499			$	14,266
From 1 - 5 Years	146,978		1,910		114,202		—				263,090
From 5 - 10 Years	—		396		34,913		—				35,309
Over 10 Years	—		520		—		800				1,320
Securities in a Continuous   Loss Position, at Fair Value:
Less than 12 Months	$	89,563	$	—	$	85,091	$	500	$	—	$	175,154
12 Months or Longer	—		—		—		1,800		—		1,800
Total	$	89,563	$	—	$	85,091	$	2,300	$	—	$	176,954
Number of Securities in a   Continuous Loss Position	23		—		31		3		—		57
Unrealized Losses on   Securities in a Continuous   Loss Position:
Less than 12 Months	$	150	$	—	$	1,016	$	—	$	—	$	1,166
12 Months or Longer	—		—		—		201		—		201
Total	$	150	$	—	$	1,016	$	201	$	—	$	1,367
Disaggregated Details:
US Treasury Obligations,   at Amortized Cost	$	64,711
US Treasury Obligations, at Fair Value	64,730
US Agency Obligations, at Amortized Cost	82,265
US Agency Obligations, at Fair Value	82,248
US Government Agency   Securities, at Amortized Cost					$	503
US Government Agency   Securities, at Fair Value					505
Government Sponsored Entity   Securities, at Amortized Cost					152,355
Government Sponsored Entity Securities, at Fair Value					152,301

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

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
September 30, 2016
Available-For-Sale Securities,   at Amortized Cost	$	152,511	$	31,562	$	144,598	$	4,500	$	1,120	$	334,291
Available-For-Sale Securities,   at Fair Value	153,926		31,628		148,087		4,299		1,250		339,190
Gross Unrealized Gains	1,415		69		3,489		—		130		5,103
Gross Unrealized Losses	—		3		—		201		—		204
Available-For-Sale Securities,   Pledged as Collateral											277,832
Securities in a Continuous   Loss Position, at Fair Value:
Less than 12 Months	$	—	$	9,237	$	—	$	1,022	$	—	$	10,259
12 Months or Longer	—		—		—		1,800		—		1,800
Total	$	—	$	9,237	$	—	$	2,822	$	—	$	12,059
Number of Securities in a   Continuous Loss Position	—		1		2		3		—		6
Unrealized Losses on Securities   in a Continuous Loss Position:
Less than 12 Months	$	—	$	3	$	—	$	1	$	—	$	4
12 Months or Longer	—		—		—		200		—		200
Total	$	—	$	3	$	—	$	201	$	—	$	204
Disaggregated Details:
US Agency Obligations, at Amortized Cost	$	152,511
US Agency Obligations, at Fair Value	153,926
US Government Agency   Securities, at Amortized Cost					$	10,849
US Government Agency   Securities, at Fair Value					11,003
Government Sponsored Entity   Securities, at Amortized Cost					133,749
Government Sponsored Entity Securities, at Fair Value					137,084

Held-To-Maturity Securities

The following table is the schedule of Held-To-Maturity Securities at September 30, 2017, December 31, 2016 and September 30, 2016:

Held-To-Maturity Securities
	State and Municipal Obligations		Mortgage- Backed Securities - Residential		Corporate and Other Debt Securities		Total Held-To Maturity Securities
September 30, 2017
Held-To-Maturity Securities,   at Amortized Cost	$	277,738	$	63,788	$	—	$	341,526
Held-To-Maturity Securities,   at Fair Value	279,384		64,515		—		343,899
Gross Unrealized Gains	2,977		738		—		3,715
Gross Unrealized Losses	1,331		11		—		1,342
Held-To-Maturity Securities,   Pledged as Collateral							325,096
Maturities of Debt Securities,   at Amortized Cost:
Within One Year	$	39,609	$	—	$	—	$	39,609
From 1 - 5 Years	79,412		54,504		—		133,916
From 5 - 10 Years	154,981		9,284		—		164,265
Over 10 Years	3,736		—		—		3,736
Maturities of Debt Securities,   at Fair Value:
Within One Year	$	39,782	$	—	$	—	$	39,782
From 1 - 5 Years	80,944		55,120		—		136,064
From 5 - 10 Years	154,892		9,395		—		164,287
Over 10 Years	3,766		—		—		3,766
Securities in a Continuous   Loss Position, at Fair Value:
Less than 12 Months	$	78,238	$	3,544	$	—	$	81,782
12 Months or Longer	13,331		—		—		13,331
Total	$	91,569	$	3,544	$	—	$	95,113
Number of Securities in a   Continuous Loss Position	252		7		—		259
Unrealized Losses on Securities    in a Continuous Loss Position:
Less than 12 Months	$	1,034	$	11	$	—	$	1,045
12 Months or Longer	297		—		—		297
Total	$	1,331	$	11	$	—	$	1,342
Disaggregated Details:
US Government Agency   Securities, at Amortized Cost			$	2,792
US Government Agency   Securities, at Fair Value			2,799
Government Sponsored Entity   Securities, at Amortized Cost			60,996
Government Sponsored Entity Securities, at Fair Value			61,716

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
September 30, 2016
Held-To-Maturity Securities,   at Amortized Cost	$	257,255	$	79,983	$	1,000	$	338,238
Held-To-Maturity Securities,   at Fair Value	263,897		82,544		1,000		347,441
Gross Unrealized Gains	6,712		2,561		—		9,273
Gross Unrealized Losses	70		—		—		70
Held-To-Maturity Securities,   Pledged as Collateral							320.774
Securities in a Continuous   Loss Position, at Fair Value:
Less than 12 Months	$	11,891	$	—	$	—	$	11,891
12 Months or Longer	1,172		—		—		1,172
Total	$	13,063	$	—	$	—	$	13,063
Number of Securities in a   Continuous Loss Position	3		—		—		3
Unrealized Losses on   Securities in a Continuous   Loss Position:
Less than 12 Months	$	68	$	—	$	—	$	68
12 Months or Longer	2		—		—		2
Total	$	70	$	—	$	—	$	70

Held-To-Maturity Securities
	State and Municipal Obligations	Mortgage- Backed Securities - Residential		Corporate and Other Debt Securities	Total Held-To Maturity Securities
September 30, 2016
Disaggregated Details:
US Government Agency   Securities, at Amortized Cost		$	3,497
US Government Agency   Securities, at Fair Value		3,622
Government Sponsored Entity   Securities, at Amortized Cost		76,486
Government Sponsored Entity Securities, at Fair Value		78,922

XML

Loans (Tables)

9 Months Ended

Sep. 30, 2017

Loans and Leases Receivable Disclosure [Abstract]

Past Due Financing Receivables

The following table presents loan balances outstanding as of September 30, 2017, December 31, 2016 and September 30, 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 $1,323, $483 and $1,414 as of September 30, 2017, December 31, 2016 and September 30, 2016, respectively, are included in the residential real estate balances for current loans.

			Commercial
	Commercial		Real Estate		Consumer		Residential		Total
September 30, 2017
Loans Past Due 30-59 Days	$	122	$	442	$	4,781	$	1,675	$	7,020
Loans Past Due 60-89 Days	—		—		914		77		991
Loans Past Due 90 or more Days	102		807		291		1,742		2,942
Total Loans Past Due	224		1,249		5,986		3,494		10,953
Current Loans	125,136		439,467		586,043		747,200		1,897,846
Total Loans	$	125,360	$	440,716	$	592,029	$	750,694	$	1,908,799
Loans 90 or More Days Past Due   and Still Accruing Interest	$	—	$	—	$	41	$	926	$	967
Nonaccrual Loans	609		1,249		507		3,117		5,482
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		1,741,369
Total Loans	$	105,155	$	431,646	$	537,361	$	679,106	$	1,753,268
Loans 90 or More Days Past Due   and Still Accruing Interest	$	—	$	—	$	158	$	1,043	$	1,201
Nonaccrual Loans	$	155	$	875	$	589	$	2,574	4,193
September 30, 2016
Loans Past Due 30-59 Days	$	38	$	—	$	3,793	$	271	$	4,102
Loans Past Due 60-89 Days	67		—		1,412		1,450		2,929
Loans Past Due 90 or more Days	160		1,106		343		1,467		3,076
Total Loans Past Due	265		1,106		5,548		3,188		10,107
Current Loans	102,789		427,905		518,155		648,260		1,697,109
Total Loans	$	103,054	$	429,011	$	523,703	$	651,448	$	1,707,216
Loans 90 or More Days Past Due   and Still Accruing Interest	$	—	$	—	$	—	$	548	$	548
Nonaccrual Loans	$	160	$	3,689	$	532	$	1,726	6,107

Allowance for Credit Losses on Financing Receivables

The following table presents a roll-forward of the allowance for loan losses and other information pertaining to the allowance for loan losses:

Allowance for Loan Losses
				Commercial
	Commercial			Real Estate			Consumer			Residential			Unallocated			Total
Roll-forward of the Allowance for Loan Losses for the Quarterly Periods:
June 30, 2017	$	925		$	4,983		$	7,305		$	4,229		$	—		$	17,442
Charge-offs	—			(342		)	(280		)	—			—			(622		)
Recoveries	1			—			74			—			—			75
Provision	(46		)	446			509			(109		)	—			800
September 30, 2017	$	880		$	5,087		$	7,608		$	4,120		$	—		$	17,695
June 30, 2016	$	1,128		$	5,816		$	5,742		$	4,026		$	86		$	16,798
Charge-offs	(34		)	—			(243		)	(90		)	—			(367		)
Recoveries	5			—			59			—			—			64
Provision	(76		)	(75		)	513			166			(48		)	480
September 30, 2016	$	1,023		$	5,741		$	6,071		$	4,102		$	38		$	16,975

Allowance for Loan Losses
				Commercial
	Commercial			Real Estate			Consumer			Residential			Unallocated			Total
Roll-forward of the Allowance for Loan Losses for the Year-to-Date Periods:
December 31, 2016	$	1,017		$	5,677		$	6,120		$	4,198		$	—		$	17,012
Charge-offs	(2		)	(342		)	(847		)	(6		)	—			(1,197		)
Recoveries	8			—			292			—			—			300
Provision	(143		)	(248		)	2,043			(72		)	—			1,580
September 30, 2017	$	880		$	5,087		$	7,608		$	4,120		$	—		$	17,695
December 31, 2015	$	1,827		$	4,520		$	5,554		$	3,790		$	347		$	16,038
Charge-offs	(86		)	—			(591		)	(107		)	—			(784		)
Recoveries	20			—			150			1			—			171
Provision	(738		)	1,221			958			418			(309		)	1,550
September 30, 2016	$	1,023		$	5,741		$	6,071		$	4,102		$	38		$	16,975
September 30, 2017
Allowance for loan losses - Loans Individually Evaluated for Impairment	$	104		$	—		$	—		$	34		$	—		$	138
Allowance for loan losses - Loans Collectively Evaluated for Impairment	776			5,087			7,608			4,086			—			17,557
Ending Loan Balance - Individually Evaluated for Impairment	489			1,543			104			1,139			—			3,275
Ending Loan Balance - Collectively Evaluated for Impairment	$	124,871		$	439,172		$	591,925		$	749,556		$	—		$	1,905,524
December 31, 2016
Allowance for loan losses - Loans Individually Evaluated for Impairment	$	—		$	—		$	—		$	—		$	—		$	—
Allowance for loan losses - Loans Collectively Evaluated for Impairment	1,017			5,677			6,120			4,198			—			17,012
Ending Loan Balance - Individually Evaluated for Impairment	—			890			91			1,098			—			2,079
Ending Loan Balance - Collectively Evaluated for Impairment	$	105,155		$	430,756		$	537,270		$	678,008		$	—		$	1,751,189
September 30, 2016
Allowance for loan losses - Loans Individually Evaluated for Impairment	$	—		$	240		$	—		$	—		$	—		$	240
Allowance for loan losses - Loans Collectively Evaluated for Impairment	1,023			5,501			6,071			4,102			38			16,735
Ending Loan Balance - Individually Evaluated for Impairment	—			3,538			90			317			—			3,945
Ending Loan Balance - Collectively Evaluated for Impairment	$	103,054		$	425,473		$	523,613		$	651,131		$	—		$	1,703,271

Financing Receivable Credit Quality Indicators

The following table presents the credit quality indicators by loan category at September 30, 2017, December 31, 2016 and September 30, 2016:

Loan Credit Quality Indicators
			Commercial
	Commercial		Real Estate		Consumer		Residential		Total
September 30, 2017
Credit Risk Profile by Creditworthiness Category:
Satisfactory	$	120,622	$	411,685	$	—	$	—	$	532,307
Special Mention	1,394		1,401		—		—		2,795
Substandard	3,344		26,822		—		—		30,166
Doubtful	—		807		—		—		807
Credit Risk Profile Based on Payment Activity:
Performing	$	—	$	—	$	591,499	$	746,652	$	1,338,151
Nonperforming	—		—		530		4,043		4,573
December 31, 2016
Credit Risk Profile by Creditworthiness Category:
Satisfactory	$	95,722	$	396,907	$	—	$	—	$	492,629
Special Mention	1,359		7,008		—		—		8,367
Substandard	8,074		27,731		—		—		35,805
Doubtful	—		—		—		—		—
Credit Risk Profile Based on Payment Activity:
Performing	$	—	$	—	$	536,614	$	675,489	$	1,212,103
Nonperforming	—		—		747		3,617		4,364
September 30, 2016
Credit Risk Profile by Creditworthiness Category:
Satisfactory	$	93,903	$	392,697	$	—	$	—	$	486,600
Special Mention	1,274		10,472		—		—		11,746
Substandard	7,877		25,842		—		—		33,719
Doubtful	—		—		—		—		—
Credit Risk Profile Based on Payment Activity:
Performing	$	—	$	—	$	523,171	$	649,093	$	1,172,264
Nonperforming	—		—		532		2,355		2,887

Impaired Financing Receivables

The following table presents information on impaired loans based on whether the impaired loan has a recorded related allowance or has no recorded related allowance:

Impaired Loans
			Commercial
	Commercial		Real Estate		Consumer		Residential		Total
September 30, 2017
Recorded Investment:
With No Related Allowance	$	—	$	818	$	104	$	851	$	1,773
With a Related Allowance	489		725		—		288		1,502
Unpaid Principal Balance:
With No Related Allowance	—		818		90		850		1,758
With a Related Allowance	489		723		—		288		1,500
December 31, 2016
Recorded Investment:
With No Related Allowance	$	—	$	890	$	91	$	1,098	$	2,079
With a Related Allowance	—		—		—		—		—
Unpaid Principal Balance:
With No Related Allowance	—		890		91		1,098		2,079
With a Related Allowance	—		—		—		—		—
September 30, 2016
Recorded Investment:
With No Related Allowance	$	—	$	898	$	90	$	317	$	1,305
With a Related Allowance	—		2,640		—		—		2,640
Unpaid Principal Balance:
With No Related Allowance	—		898		90		317		$	1,305
With a Related Allowance	—		2,640		—		—		2,640
For the Quarter Ended:
September 30, 2017
Average Recorded Balance:
With No Related Allowance	$	—	$	998	$	96	$	827	$	1,921
With a Related Allowance	496		363		—		288		1,147
Interest Income Recognized:
With No Related Allowance	—		—		1		—		1
With a Related Allowance	—		—		—		—		—
Cash Basis Income:
With No Related Allowance	—		—		—		—		—
With a Related Allowance	—		—		—		—		—
September 30, 2016
Average Recorded Balance:
With No Related Allowance	$	—	$	1,374	$	92	$	479	$	1,945
With a Related Allowance	—		2,166		—		—		2,166
Interest Income Recognized:
With No Related Allowance	—		3		2		—		5
With a Related Allowance	—		—		—		—		—
Cash Basis Income:
With No Related Allowance	—		—		—		—		—
With a Related Allowance	—		—		—		—		—

Impaired Loans
			Commercial
	Commercial		Real Estate		Consumer		Residential		Total
For the Year-To-Date Period Ended:
September 30, 2017
Average Recorded Balance:
With No Related Allowance	$	—	$	854	$	98	$	975	$	1,927
With a Related Allowance	245		363		—		144		752
Interest Income Recognized:
With No Related Allowance	—		—		3		—		3
With a Related Allowance	—		—		—		4		4
Cash Basis Income:
With No Related Allowance	—		—		—		—		—
With a Related Allowance	—		—		—		—		—
September 30, 2016
Average Recorded Balance:
With No Related Allowance	$	78	$	1,635	$	102	$	481	$	2,296
With a Related Allowance	—		1,320		—		—		1,320
Interest Income Recognized:
With No Related Allowance	—		14		4		—		18
With a Related Allowance	—		—		—		—		—
Cash Basis Income:
With No Related Allowance	—		—		—		—		—
With a Related Allowance	—		—		—		—		—

Troubled Debt Restructurings on Financing Receivables

The following table presents information on loans modified in trouble debt restructurings during the periods indicated. All loans were modified under Arrow's own programs. The principal modification, for all the modifications in the table below, involved payment deferrals.

Loans Modified in Trouble Debt Restructurings During the Period
			Commercial
	Commercial		Real Estate		Consumer		Residential		Total
For the Quarter Ended:
September 30, 2017
Number of Loans	1		—		2		—		3
Pre-Modification Outstanding Recorded Investment	$	725	$	—	$	25	$	—	$	750
Post-Modification Outstanding Recorded Investment	725		—		25		—		750
Subsequent Default, Number of Contracts	—		—		—		—		—
Subsequent Default, Recorded Investment	—		—		—		—		—
September 30, 2016
Number of Loans	—		—		1		—		1
Pre-Modification Outstanding Recorded Investment	$	—	$	—	$	15	$	—	$	15
Post-Modification Outstanding Recorded Investment	—		—		15		—		15
Subsequent Default, Number of Contracts	—		—		—		—		—
Subsequent Default, Recorded Investment	—		—		—		—		—
For the Year-To-Date Period Ended:
September 30, 2017
Number of Loans	2		—		6		—		8
Pre-Modification Outstanding Recorded Investment	$	1,228	$	—	$	51	$	—	$	1,279
Post-Modification Outstanding Recorded Investment	1,228		—		51		—		1,279
Subsequent Default, Number of Contracts	—		—		—		—		—
Subsequent Default, Recorded Investment	—		—		—		—		—
September 30, 2016
Number of Loans	—		—		2		—		2
Pre-Modification Outstanding Recorded Investment	$	—	$	—	$	23	$	—	$	23
Post-Modification Outstanding Recorded Investment	—		—		23		—		23
Subsequent Default, Number of Contracts	—		—		—		—		—
Subsequent Default, Recorded Investment	—		—		—		—		—

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Guarantees (Tables)

9 Months Ended

Sep. 30, 2017

Guarantees [Abstract]

Schedule of Guarantor Obligations

The following table presents the balance for commitments to extend credit and standby letters of credit for the periods ended September 30, 2017, December 31, 2016 and September 30, 2016:

Commitments to Extend Credit and Letters of Credit
	September 30, 2017		December 31, 2016		September 30, 2016
Notional Amount:
Commitments to Extend Credit	$	316,449	$	296,442	$	300,439
Standby Letters of Credit	3,672		3,445		3,483
Fair Value:
Commitments to Extend Credit	$	—	$	—	$	—
Standby Letters of Credit	18		30		31

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Comprehensive Income (Tables)

9 Months Ended

Sep. 30, 2017

Other Comprehensive Income (Loss), Net of Tax [Abstract]

Schedule of Comprehensive Income (Loss)

The following table presents the components of other comprehensive income for the three-month period ended September 30, 2017 and 2016:

Schedule of Comprehensive Income
	Three Months Ended September 30,									Nine Months Ended September 30,
				Tax									Tax
	Before-Tax			(Expense)			Net-of-Tax			Before-Tax			(Expense)			Net-of-Tax
	Amount			Benefit			Amount			Amount			Benefit			Amount
2017
Net Unrealized Securities Holding (Losses) Gains Arising During the Period	6			$	3		9			749			$	(284	)	465
Reclassification Adjustment for Securities Gains Included in Net Income	(10		)	4			(6		)	(10		)	4			(6		)
Amortization of Net Retirement Plan Actuarial Loss	179			(115		)	64			537			(292		)	245
Accretion of Net Retirement Plan Prior Service Credit	(3		)	1			(2		)	(8		)	3			(5		)
Other Comprehensive Income (Loss)	$	172		$	(107	)	$	65		$	1,268		$	(569	)	$	699
2016
Net Unrealized Securities Holding Gains (Losses) Arising During the Period	(1,264		)	$	454		(810		)	3,868			$	(1,559	)	2,309
Reclassification Adjustment for Securities Gains Included in Net Income	—			—			—			(144		)	56			(88		)
Amortization of Net Retirement Plan Actuarial Loss	181			(70		)	111			503			(189		)	314
Accretion of Net Retirement Plan Prior Service Credit	(3		)	2			(1		)	(7		)	2			(5		)
Other Comprehensive Income (Loss)	$	(1,086	)	$	386		$	(700	)	$	4,220		$	(1,690	)	$	2,530

Changes in Accumulated Other Comprehensive Income By Component

The following table presents the changes in accumulated other comprehensive income by component:

Changes in Accumulated Other Comprehensive Income (Loss) by Component (1)
	Unrealized			Defined Benefit Plan Items
	Gains and
	Losses on						Net Prior
	Available-for-			Net Gain			Service
	Sale Securities			(Loss)			(Cost ) Credit			Total
For the Quarter-To-Date periods ended:
June 30, 2017	$	74		$	(5,556	)	$	(718	)	$	(6,200	)
Other comprehensive income or loss before reclassifications	9			—			—			9
Amounts reclassified from accumulated other comprehensive income	(6		)	64			(2		)	56
Net current-period other comprehensive income	3			64			(2		)	65
September 30, 2017	$	77		$	(5,492	)	$	(720	)	$	(6,135	)
June 30, 2016	$	3,660		$	(7,690	)	$	(712	)	$	(4,742	)
Other comprehensive income or loss before reclassifications	(810		)	—			—			(810		)
Amounts reclassified from accumulated other comprehensive income	—			111			(1		)	110
Net current-period other comprehensive income	(810		)	111			(1		)	(700		)
September 30, 2016	$	2,850		$	(7,579	)	$	(713	)	$	(5,442	)
For the Year-To-Date periods ended:
December 31, 2016	$	(382	)	$	(5,737	)	$	(715	)	$	(6,834	)
Other comprehensive income or loss before reclassifications	465			—			—			465
Amounts reclassified from accumulated other comprehensive income	(6		)	245			(5		)	234
Net current-period other comprehensive income	459			245			(5		)	699
September 30, 2017	$	77		$	(5,492	)	$	(720	)	$	(6,135	)
December 31, 2015	$	629		$	(7,893	)	$	(708	)	$	(7,972	)
Other comprehensive income or loss before reclassifications	2,309			—			—			2,309
Amounts reclassified from accumulated other comprehensive income	(88		)	314			(5		)	221
Net current-period other comprehensive income	2,221			314			(5		)	2,530
September 30, 2016	$	2,850		$	(7,579	)	$	(713	)	$	(5,442	)

(1) All amounts are net of tax. Amounts in parentheses indicate debits.

Reclassification out of Accumulated Other Comprehensive Income

The following table presents the reclassifications out of accumulated other comprehensive income:

Reclassifications Out of Accumulated Other Comprehensive Income (1)
	Amounts Reclassified
Details about Accumulated Other	from Accumulated Other				Affected Line Item in the Statement
Comprehensive Income (Loss) Components	Comprehensive Income				Where Net Income Is Presented
For the Quarter-to-date periods ended:
September 30, 2017
Unrealized gains and losses on available-for-sale securities	$	10			Gain on Securities Transactions
	10				Total before Tax
	(4		)		Provision for Income Taxes
	$	6			Net of Tax
Amortization of defined benefit pension items:
Prior-service costs	$	3		(2)	Salaries and Employee Benefits
Actuarial gains/(losses)	(179		)	(2)	Salaries and Employee Benefits
	(176		)		Total before Tax
	114				Provision for Income Taxes
	$	(62	)		Net of Tax
Total reclassifications for the period	$	(56	)		Net of Tax
September 30, 2016
Unrealized gains and losses on available-for-sale securities	$	—			Gain on Securities Transactions
	—				Total before Tax
	—				Provision for Income Taxes
	$	—			Net of Tax
Amortization of defined benefit pension items:
Prior-service costs	$	3		(2)	Salaries and Employee Benefits
Actuarial gains/(losses)	(181		)	(2)	Salaries and Employee Benefits
	(178		)		Total before Tax
	68				Provision for Income Taxes
	$	(110	)		Net of Tax
Total reclassifications for the period	$	(110	)		Net of Tax
For the Year-to-date periods ended:
September 30, 2017
Unrealized gains and losses on available-for-sale securities	$	10			Gain on Securities Transactions
	10				Total before Tax
	(4		)		Provision for Income Taxes
	$	6			Net of Tax
Amortization of defined benefit pension items:
Prior-service costs	$	8		(2)	Salaries and Employee Benefits
Actuarial gains/(losses)	(537		)	(2)	Salaries and Employee Benefits
	(529		)		Total before Tax
	289				Provision for Income Taxes
	$	(240	)		Net of Tax
Total reclassifications for the period	$	(234	)		Net of Tax

Reclassifications Out of Accumulated Other Comprehensive Income (1)
	Amounts Reclassified
Details about Accumulated Other	from Accumulated Other				Affected Line Item in the Statement
Comprehensive Income (Loss) Components	Comprehensive Income				Where Net Income Is Presented
September 30, 2016
Unrealized gains and losses on available-for-sale securities	$	144			Gain on Securities Transactions
	144				Total before Tax
	(56		)		Provision for Income Taxes
	$	88			Net of Tax
Amortization of defined benefit pension items:
Prior-service costs	7			(2)	Salaries and Employee Benefits
Actuarial gains/(losses)	$	(503	)	(2)	Salaries and Employee Benefits
	(496		)		Total before Tax
	187				Provision for Income Taxes
	$	(309	)		Net of Tax
Total reclassifications for the period	$	(221	)		Net of Tax

(1) Amounts in parentheses indicate debits to profit/loss.

(2) These accumulated other comprehensive income components are included in the computation of net periodic pension cost.

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Stock Based Compensation Plans (Tables)

9 Months Ended

Sep. 30, 2017

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Disclosure of Share-based Compensation Arrangements by Share-based Payment Award

The following table presents a roll-forward of stock option plans and grants issued during 2017:

Schedule of Share-based Compensation Arrangements
	Stock Option Plans
Roll-Forward of Shares Outstanding:
Outstanding at January 1, 2017	366,329
Granted	55,621
Exercised	(35,937		)
Forfeited	—
Outstanding at September 30, 2017	386,013
Exercisable at Period-End	242,706
Vested and Expected to Vest	143,307
Roll-Forward of Shares Outstanding - Weighted Average Exercise Price:
Outstanding at January 1, 2017	$	21.86
Granted	36.12
Exercised	20.46
Forfeited	—
Outstanding at September 30, 2017	24.05
Exercisable at Period-End	21.34
Vested and Expected to Vest	28.62
Grants Issued During 2017 - Weighted Average Information:
Fair Value	$	6.25
Fair Value Assumptions:
Dividend Yield	2.72		%
Expected Volatility	21.40		%
Risk Free Interest Rate	2.25		%
Expected Lives (in years)	6.88

Schedule of Employee Service Share-based Compensation, Allocation of Recognized Period Costs

The following table presents information on the amounts expensed for the periods ended September 30, 2017 and 2016:

Share-Based Compensation Expense
	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2017		2016		2017		2016
Share-Based Compensation Expense	$	90	$	71	$	262	$	215

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Retirement Plans (Tables)

9 Months Ended

Sep. 30, 2017

Defined Benefit Pension Plans and Defined Benefit Postretirement Plans Disclosure [Abstract]

Schedule of Defined Benefit Plans Disclosures

The following tables provide the components of net periodic benefit costs for the three and nine-month periods ended September 30, 2017 and 2016.

				Select
	Employees'			Executive		Postretirement
	Pension			Retirement		Benefit
	Plan			Plan		Plans
Net Periodic Benefit Cost
For the Three Months Ended September 30, 2017:
Service Cost	$	350		$	10	$	37
Interest Cost	362			55		75
Expected Return on Plan Assets	(800		)	—		—
Amortization of Prior Service (Credit) Cost	(14		)	14		(3		)
Amortization of Net Loss	148			31		—
Net Periodic Benefit Cost	$	46		$	110	$	109
Plan Contributions During the Period	$	—		$	116	$	65
For the Three Months Ended September 30, 2016:
Service Cost	$	376		$	8	$	63
Interest Cost	420			56		83
Expected Return on Plan Assets	(828		)	—		—
Amortization of Prior Service (Credit) Cost	(14		)	14		(3		)
Amortization of Net Loss	140			28		—
Net Periodic Benefit Cost	$	94		$	106	$	143
Plan Contributions During the Period	$	—		$	131	$	47
Net Periodic Benefit Cost
For the Nine Months Ended September 30, 2017:
Service Cost	$	1,050		$	30	$	110
Interest Cost	1,085			164		224
Expected Return on Plan Assets	(2,399		)	—		—
Amortization of Prior Service Cost (Credit)	(43		)	43		(8		)
Amortization of Net Loss	443			94		—
Net Periodic Benefit Cost	$	136		$	331	$	326
Plan Contributions During the Period	$	—		$	345	$	295
Estimated Future Contributions in the Current Fiscal Year	$	—		$	115	$	98
For the Nine Months Ended September 30, 2016:
Service Cost	$	1,127		$	24	$	188
Interest Cost	1,262			163		178
Expected Return on Plan Assets	(2,483		)	—		—
Amortization of Prior Service (Credit) Cost	(42		)	43		(8		)
Amortization of Net Loss	419			84		—
Net Periodic Benefit Cost	$	283		$	314	$	358
Plan Contributions During the Period	$	—		$	350	$	197

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Earnings Per Common Share (Tables)

9 Months Ended

Sep. 30, 2017

Earnings Per Share [Abstract]

Schedule of Earnings Per Share, Basic and Diluted

The following table presents a reconciliation of the numerator and denominator used in the calculation of basic and diluted earnings per common share (“EPS”) for periods ended September 30, 2017 and 2016.  All share and per share amounts have been adjusted for the September 28, 20173% stock dividend.

Earnings Per Share
	Quarterly Period Ended:				Year-to-Date Period Ended:
	September 30, 2017		September 30, 2016		September 30, 2017		September 30, 2016
Earnings Per Share - Basic:
Net Income	$	7,416	$	6,738	$	21,255	$	19,934
Weighted Average Shares - Basic	13,889		13,810		13,889		13,775
Earnings Per Share - Basic	$	0.53	$	0.49	$	1.53	$	1.45
Earnings Per Share - Diluted:
Net Income	$	7,416	$	6,738	$	21,255	$	19,934
Weighted Average Shares - Basic	13,889		13,810		13,889		13,775
Dilutive Average Shares Attributable to Stock Options	77		91		92		67
Weighted Average Shares - Diluted	13,966		13,901		13,981		13,842
Earnings Per Share - Diluted	$	0.53	$	0.48	$	1.52	$	1.44

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Fair Value of Financial Instruments (Tables)

9 Months Ended

Sep. 30, 2017

Fair Value Disclosures [Abstract]

Fair Value Measurements, Recurring and Nonrecurring

The table below presents the financial instrument's fair value and the amounts within the fair value hierarchy based on the lowest level of input that is significant to the fair value measurement:

Fair Value of Assets and Liabilities Measured on a Recurring and Nonrecurring Basis
			Fair Value Measurements at Reporting Date Using:
	Fair Value		Quoted Prices In Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Gains (Losses)
Fair Value of Assets and Liabilities Measured on a Recurring Basis:
September 30, 2017
Securities Available-for Sale:
U.S. Government & Agency Obligations	$	146,978	$	64,730	$	82,248	$	—
State and Municipal Obligations	11,902		—		11,902		—
Mortgage-Backed Securities - Residential	152,806		—		152,806		—
Corporate and Other Debt Securities	2,299		—		2,299		—
Mutual Funds and Equity Securities	1,474		—		1,474		—
Total Securities Available-for-Sale	$	315,459	$	64,730	$	250,729	$	—
December 31, 2016
Securities Available-for Sale:
U.S. Government & Agency Obligations	$	147,377	$	54,706	$	92,671	$	—
State and Municipal Obligations	27,690		—		27,690		—
Mortgage-Backed Securities - Residential	167,239		—		167,239		—
Corporate and Other Debt Securities	3,308		—		3,308		—
Mutual Funds and Equity Securities	1,382		—		1,382		—
Total Securities Available-for Sale	$	346,996	$	54,706	$	292,290	$	—
September 30, 2016
Securities Available-for Sale:
U.S. Government & Agency Obligations	$	153,926	$	—	$	153,926	$	—
State and Municipal Obligations	31,628		—		31,628		—
Mortgage-Backed Securities - Residential	148,087		—		148,087		—
Corporate and Other Debt Securities	4,299		—		4,299		—
Mutual Funds and Equity Securities	1,250		—		1,250		—
Total Securities Available-for Sale	$	339,190	$	—	$	339,190	$	—
Fair Value of Assets and Liabilities Measured on a Nonrecurring Basis:
September 30, 2017
Collateral Dependent Impaired Loans	$	1,502	$	—	$	—	$	1,502	$	(138	)
Other Real Estate Owned and Repossessed Assets, Net	1,713		—		—		1,713		(655		)
December 31, 2016
Collateral Dependent Impaired Loans	$	—	$	—	$	—	$	—	$	—
Other Real Estate Owned and Repossessed Assets, Net	$	1,686	$	—	—		1,686		$	(587	)
September 30, 2016
Collateral Dependent Impaired Loans	$	2,640	$	—	$	—	$	2,640	$	(240	)
Other Real Estate Owned and Repossessed Assets, Net	1,016		—		—		1,016		(319		)

Fair Value, by Balance Sheet Grouping

The following table presents a summary of the carrying amount, the fair value or an amount approximating fair value and the fair value hierarchy of Arrow’s financial instruments:

Schedule of Fair Values by Balance Sheet Grouping
					Fair Value Hierarchy
	Carrying Amount		Fair Value		Level 1		Level 2		Level 3
September 30, 2017
Cash and Cash Equivalents	$	80,666	$	80,666	$	80,666	$	—	$	—
Securities Available-for-Sale	315,459		315,459		64,730		250,729		—
Securities Held-to-Maturity	341,526		343,899		—		343,899		—
Federal Home Loan Bank and Federal   Reserve Bank Stock	6,704		6,704		—		6,704		—
Net Loans	1,891,104		1,870,379		—		—		1,870,379
Accrued Interest Receivable	7,692		7,692		—		7,692		—
Deposits	2,307,116		2,299,011		—		2,299,011		—
Federal Funds Purchased and Securities   Sold Under Agreements to Repurchase	61,419		61,419		—		61,419		—
Federal Home Loan Bank Overnight Advances	33,000		33,000		—		33,000		—
Federal Home Loan Bank Term Advances	55,000		55,110		—		55,110		—
Junior Subordinated Obligations Issued   to Unconsolidated Subsidiary Trusts	20,000		20,000		—		20,000		—
Accrued Interest Payable	260		260		—		260		—
December 31, 2016
Cash and Cash Equivalents	$	57,355	$	57,355	$	57,355	$	—	$	—
Securities Available-for-Sale	346,996		346,996		54,706		292,290		—
Securities Held-to-Maturity	345,427		343,751		—		343,751		—
Federal Home Loan Bank and Federal   Reserve Bank Stock	10,912		10,912		—		10,912		—
Net Loans	1,736,256		1,720,078		—		—		1,720,078
Accrued Interest Receivable	6,684		6,684		—		6,684		—
Deposits	2,116,546		2,109,557		—		2,109,557		—
Federal Funds Purchased and Securities   Sold Under Agreements to Repurchase	35,836		35,836		—		35,836		—
Federal Home Loan Bank Overnight Advances	123,000		123,000		—		123,000		—
Federal Home Loan Bank Term Advances	55,000		55,118		—		55,118		—
Junior Subordinated Obligations Issued   to Unconsolidated Subsidiary Trusts	20,000		20,000		—		20,000		—
Accrued Interest Payable	247		247		—		247		—
September 30, 2016
Cash and Cash Equivalents	$	102,059	$	102,059	$	102,059	$	—	$	—
Securities Available-for-Sale	339,190		339,190		—		339,190		—
Securities Held-to-Maturity	338,238		347,441		—		347,441		—
Federal Home Loan Bank and Federal   Reserve Bank Stock	5,371		5,371		—		5,371		—
Net Loans	1,690,241		1,696,929		—		—		1,696,929
Accrued Interest Receivable	7,046		7,046		—		7,046		—
Deposits	2,213,187		2,207,985		—		2,207,985		—
Federal Funds Purchased and Securities   Sold Under Agreements to Repurchase	38,589		38,589		—		38,589		—
Federal Home Loan Bank Overnight Advances	—		—		—		—		—
Federal Home Loan Bank Term Advances	55,000		55,955		—		55,955		—
Junior Subordinated Obligations Issued   to Unconsolidated Subsidiary Trusts	20,000		20,000		—		20,000		—
Accrued Interest Payable	247		247		—		247		—

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Accounting Policies (Details) - USD ($) $ / shares in Units, $ in Thousands	9 Months Ended
	Sep. 30, 2017	Dec. 31, 2016	Sep. 30, 2016
Schedule of Available-for-sale Securities [Line Items]
Available-for-sale securities, at amortized cost	$ 315,329	$ 347,615	$ 334,291
Operating leases (less than)	2,600
Equity Securities
Schedule of Available-for-sale Securities [Line Items]
Available-for-sale securities, at amortized cost	1,120	$ 1,120	$ 1,120
Accounting Standards Update 2016-09
Schedule of Available-for-sale Securities [Line Items]
Effect of change on net income	$ 112
Effect of change on earnings per share (less than) (in usd per share)	$ 0.01
Fair Value, Measurements, Recurring | Equity Securities
Schedule of Available-for-sale Securities [Line Items]
Available-for-sale securities, at amortized cost	$ 1,500

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Investment Securities Available for Sale (Details) $ in Thousands	Sep. 30, 2017 USD ($)	Dec. 31, 2016 USD ($)	Sep. 30, 2016 USD ($)
Schedule of Available-for-sale Securities [Line Items]
Available-For-Sale Securities, at Amortized Cost	$ 315,329	$ 347,615	$ 334,291
Available-for-Sale	315,459	346,996	339,190
Gross Unrealized Gains	1,497	1,576	5,103
Gross Unrealized Losses	1,367	2,195	204
Available-For-Sale Securities, Pledged as Collateral	206,637	262,852	277,832
Maturities of Debt Securities, at Amortized Cost:
Within One Year	14,217
From 1 - 5 Years	262,993
From 5 - 10 Years	35,479
Over 10 Years	1,520
Maturities of Debt Securities, at Fair Value:
Within One Year	14,266
From 1 - 5 Years	263,090
From 5 - 10 Years	35,309
Over 10 Years	1,320
Securities in a Continuous Loss Position, at Fair Value:
Less than 12 Months	175,154	210,095	10,259
12 Months or Longer	1,800	10,186	1,800
Total	$ 176,954	$ 220,281	$ 12,059
Number of Securities in a Continuous Loss Position	57	147	6
Unrealized Losses on Securities in a Continuous Loss Position:
Less than 12 Months	$ 1,166	$ 1,987	$ 4
12 Months or Longer	201	208	200
Total	1,367	2,195	204
U.S. Agency Obligations
Schedule of Available-for-sale Securities [Line Items]
Available-For-Sale Securities, at Amortized Cost	146,976	147,110	152,511
Available-for-Sale	146,978	147,377	153,926
Gross Unrealized Gains	152	304	1,415
Gross Unrealized Losses	150	37	0
Maturities of Debt Securities, at Amortized Cost:
Within One Year	0
From 1 - 5 Years	146,976
From 5 - 10 Years	0
Over 10 Years	0
Maturities of Debt Securities, at Fair Value:
Within One Year	0
From 1 - 5 Years	146,978
From 5 - 10 Years	0
Over 10 Years	0
Securities in a Continuous Loss Position, at Fair Value:
Less than 12 Months	89,563	70,605	0
12 Months or Longer	0	0	0
Total	$ 89,563	$ 70,605	$ 0
Number of Securities in a Continuous Loss Position	23	19	0
Unrealized Losses on Securities in a Continuous Loss Position:
Less than 12 Months	$ 150	$ 37	$ 0
12 Months or Longer	0	0	0
Total	150	37	0
State and Municipal Obligations
Schedule of Available-for-sale Securities [Line Items]
Available-For-Sale Securities, at Amortized Cost	11,875	27,684	31,562
Available-for-Sale	11,902	27,690	31,628
Gross Unrealized Gains	27	24	69
Gross Unrealized Losses	0	18	3
Maturities of Debt Securities, at Amortized Cost:
Within One Year	9,068
From 1 - 5 Years	1,890
From 5 - 10 Years	397
Over 10 Years	520
Maturities of Debt Securities, at Fair Value:
Within One Year	9,076
From 1 - 5 Years	1,910
From 5 - 10 Years	396
Over 10 Years	520
Securities in a Continuous Loss Position, at Fair Value:
Less than 12 Months	0	12,165	9,237
12 Months or Longer	0	7,377	0
Total	$ 0	$ 19,542	$ 9,237
Number of Securities in a Continuous Loss Position	0	84	1
Unrealized Losses on Securities in a Continuous Loss Position:
Less than 12 Months	$ 0	$ 13	$ 3
12 Months or Longer	0	5	0
Total	0	18	3
Mortgage-Backed Securities - Residential
Schedule of Available-for-sale Securities [Line Items]
Available-For-Sale Securities, at Amortized Cost	152,858	168,189	144,598
Available-for-Sale	152,806	167,239	148,087
Gross Unrealized Gains	964	986	3,489
Gross Unrealized Losses	1,016	1,936	0
Maturities of Debt Securities, at Amortized Cost:
Within One Year	3,649
From 1 - 5 Years	114,127
From 5 - 10 Years	35,082
Over 10 Years	0
Maturities of Debt Securities, at Fair Value:
Within One Year	3,691
From 1 - 5 Years	114,202
From 5 - 10 Years	34,913
Over 10 Years	0
Securities in a Continuous Loss Position, at Fair Value:
Less than 12 Months	85,091	126,825	0
12 Months or Longer	0	0	0
Total	$ 85,091	$ 126,825	$ 0
Number of Securities in a Continuous Loss Position	31	40	2
Unrealized Losses on Securities in a Continuous Loss Position:
Less than 12 Months	$ 1,016	$ 1,936	$ 0
12 Months or Longer	0	0	0
Total	1,016	1,936	0
Corporate and Other Debt Securities
Schedule of Available-for-sale Securities [Line Items]
Available-For-Sale Securities, at Amortized Cost	2,500	3,512	4,500
Available-for-Sale	2,299	3,308	4,299
Gross Unrealized Gains	0	0	0
Gross Unrealized Losses	201	204	201
Maturities of Debt Securities, at Amortized Cost:
Within One Year	1,500
From 1 - 5 Years	0
From 5 - 10 Years	0
Over 10 Years	1,000
Maturities of Debt Securities, at Fair Value:
Within One Year	1,499
From 1 - 5 Years	0
From 5 - 10 Years	0
Over 10 Years	800
Securities in a Continuous Loss Position, at Fair Value:
Less than 12 Months	500	500	1,022
12 Months or Longer	1,800	2,809	1,800
Total	$ 2,300	$ 3,309	$ 2,822
Number of Securities in a Continuous Loss Position	3	4	3
Unrealized Losses on Securities in a Continuous Loss Position:
Less than 12 Months	$ 0	$ 1	$ 1
12 Months or Longer	201	203	200
Total	201	204	201
Mutual Funds and Equity Securities
Schedule of Available-for-sale Securities [Line Items]
Available-For-Sale Securities, at Amortized Cost	1,120	1,120	1,120
Available-for-Sale	1,474	1,382	1,250
Gross Unrealized Gains	354	262	130
Gross Unrealized Losses	0	0	0
Securities in a Continuous Loss Position, at Fair Value:
Less than 12 Months	0	0	0
12 Months or Longer	0	0	0
Total	$ 0	$ 0	$ 0
Number of Securities in a Continuous Loss Position	0	0	0
Unrealized Losses on Securities in a Continuous Loss Position:
Less than 12 Months	$ 0	$ 0	$ 0
12 Months or Longer	0	0	0
Total	0	0	0
Fair Value, Measurements, Recurring
Schedule of Available-for-sale Securities [Line Items]
Available-for-Sale	315,459	346,996	339,190
Fair Value, Measurements, Recurring | U.S. Agency Obligations
Schedule of Available-for-sale Securities [Line Items]
Available-for-Sale	146,978	147,377	153,926
Fair Value, Measurements, Recurring | State and Municipal Obligations
Schedule of Available-for-sale Securities [Line Items]
Available-for-Sale	11,902	27,690	31,628
Fair Value, Measurements, Recurring | Corporate and Other Debt Securities
Schedule of Available-for-sale Securities [Line Items]
Available-for-Sale	2,299	3,308	4,299
Fair Value, Measurements, Recurring | Mutual Funds and Equity Securities
Schedule of Available-for-sale Securities [Line Items]
Available-For-Sale Securities, at Amortized Cost	1,500
Available-for-Sale	1,474	1,382	1,250
US Treasury Securities | U.S. Agency Obligations
Schedule of Available-for-sale Securities [Line Items]
Available-For-Sale Securities, at Amortized Cost	64,711	54,701
Available-for-Sale	64,730	54,706
Agency Securities | U.S. Agency Obligations
Schedule of Available-for-sale Securities [Line Items]
Available-For-Sale Securities, at Amortized Cost	82,265	92,409	152,511
Available-for-Sale	82,248	92,671	153,926
Agency Securities | Mortgage-Backed Securities - Residential
Schedule of Available-for-sale Securities [Line Items]
Available-For-Sale Securities, at Amortized Cost	503	3,694	10,849
Available-for-Sale	505	3,724	11,003
US Government-sponsored Enterprises Debt Securities | Mortgage-Backed Securities - Residential
Schedule of Available-for-sale Securities [Line Items]
Available-for-Sale	152,301	163,515	137,084
US Government-sponsored Enterprises Debt Securities | Mortgage-Backed Securities - Residential | US Government-sponsored Enterprises Debt Securities
Schedule of Available-for-sale Securities [Line Items]
Available-For-Sale Securities, at Amortized Cost	$ 152,355	$ 164,495	$ 133,749

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Investment Securities Held to Maturity (Details) $ in Thousands	Sep. 30, 2017 USD ($)	Dec. 31, 2016 USD ($)	Sep. 30, 2016 USD ($)
Schedule of Held-to-maturity Securities [Line Items]
Held-to-Maturity at Amortized Cost	$ 341,526	$ 345,427	$ 338,238
Held-To-Maturity Securities, at Fair Value	343,899	343,751	347,441
Gross Unrealized Gains	3,715	2,316	9,273
Gross Unrealized Losses	1,342	3,992	70
Held-To-Maturity Securities, Pledged as Collateral	325,096	321,202	321
Maturities of Debt Securities, at Amortized Cost:
Within One Year	39,609
From 1 - 5 Years	133,916
From 5 - 10 Years	164,265
Over 10 Years	3,736
Maturities of Debt Securities, at Fair Value:
Within One Year	39,782
From 1 - 5 Years	136,064
From 5 - 10 Years	164,287
Over 10 Years	3,766
Securities in a Continuous Loss Position, at Fair Value:
Less than 12 Months	81,782	120,561	11,891
12 Months or Longer	13,331	12,363	1,172
Total	$ 95,113	$ 132,924	$ 13,063
Number of Securities in a Continuous Loss Position	259	360	3
Unrealized Losses on Securities in a Continuous Loss Position:
Less than 12 Months	$ 1,045	$ 3,298	$ 68
12 Months or Longer	297	694	2
Total	1,342	3,992	70
State and Municipal Obligations
Schedule of Held-to-maturity Securities [Line Items]
Held-to-Maturity at Amortized Cost	277,738	268,892	257,255
Held-To-Maturity Securities, at Fair Value	279,384	267,127	263,897
Gross Unrealized Gains	2,977	2,058	6,712
Gross Unrealized Losses	1,331	3,823	70
Maturities of Debt Securities, at Amortized Cost:
Within One Year	39,609
From 1 - 5 Years	79,412
From 5 - 10 Years	154,981
Over 10 Years	3,736
Maturities of Debt Securities, at Fair Value:
Within One Year	39,782
From 1 - 5 Years	80,944
From 5 - 10 Years	154,892
Over 10 Years	3,766
Securities in a Continuous Loss Position, at Fair Value:
Less than 12 Months	78,238	107,255	11,891
12 Months or Longer	13,331	12,363	1,172
Total	$ 91,569	$ 119,618	$ 13,063
Number of Securities in a Continuous Loss Position	252	347	3
Unrealized Losses on Securities in a Continuous Loss Position:
Less than 12 Months	$ 1,034	$ 3,129	$ 68
12 Months or Longer	297	694	2
Total	1,331	3,823	70
Mortgage-Backed Securities - Residential
Schedule of Held-to-maturity Securities [Line Items]
Held-to-Maturity at Amortized Cost	63,788	75,535	79,983
Held-To-Maturity Securities, at Fair Value	64,515	75,624	82,544
Gross Unrealized Gains	738	258	2,561
Gross Unrealized Losses	11	169	0
Maturities of Debt Securities, at Amortized Cost:
Within One Year	0
From 1 - 5 Years	54,504
From 5 - 10 Years	9,284
Over 10 Years	0
Maturities of Debt Securities, at Fair Value:
Within One Year	0
From 1 - 5 Years	55,120
From 5 - 10 Years	9,395
Over 10 Years	0
Securities in a Continuous Loss Position, at Fair Value:
Less than 12 Months	3,544	13,306	0
12 Months or Longer	0	0	0
Total	$ 3,544	$ 13,306	$ 0
Number of Securities in a Continuous Loss Position	7	13	0
Unrealized Losses on Securities in a Continuous Loss Position:
Less than 12 Months	$ 11	$ 169	$ 0
12 Months or Longer	0	0	0
Total	11	169	0
Mortgage-Backed Securities - Residential | Agency Securities
Schedule of Held-to-maturity Securities [Line Items]
Held-to-Maturity at Amortized Cost	2,792	3,206	3,497
Mortgage-Backed Securities - Residential | US Government-sponsored Enterprises Debt Securities
Schedule of Held-to-maturity Securities [Line Items]
Held-to-Maturity at Amortized Cost	60,996	72,329	76,486
Corporate and Other Debt Securities
Schedule of Held-to-maturity Securities [Line Items]
Held-to-Maturity at Amortized Cost	0	1,000	1,000
Held-To-Maturity Securities, at Fair Value	0	1,000	1,000
Gross Unrealized Gains	0	0	0
Gross Unrealized Losses	0	0	0
Maturities of Debt Securities, at Amortized Cost:
Within One Year	0
From 1 - 5 Years	0
From 5 - 10 Years	0
Over 10 Years	0
Maturities of Debt Securities, at Fair Value:
Within One Year	0
From 1 - 5 Years	0
From 5 - 10 Years	0
Over 10 Years	0
Securities in a Continuous Loss Position, at Fair Value:
Less than 12 Months	0	0	0
12 Months or Longer	0	0	0
Total	$ 0	$ 0	$ 0
Number of Securities in a Continuous Loss Position	0	0	0
Unrealized Losses on Securities in a Continuous Loss Position:
Less than 12 Months	$ 0	$ 0	$ 0
12 Months or Longer	0	0	0
Total	0	0	0
Fair Value, Measurements, Recurring | Mortgage-Backed Securities - Residential | US Government-sponsored Enterprises Debt Securities
Schedule of Held-to-maturity Securities [Line Items]
Held-To-Maturity Securities, at Fair Value	61,716	72,402	78,922
Fair Value, Measurements, Recurring | Agency Securities | Mortgage-Backed Securities - Residential
Schedule of Held-to-maturity Securities [Line Items]
Held-To-Maturity Securities, at Fair Value	$ 2,799	$ 3,222	$ 3,622

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Loans Supplemental Loan Information (Details) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2017	Dec. 31, 2016	Sep. 30, 2016
Loans and Leases Receivable, Other Information [Abstract]
Loans Held-for-sale	$ 1,323	$ 483	$ 1,414
Credit Card Receivable | Consumer Portfolio Segment | Minimum
Schedule of Financing Receivable Terms [Line Items]
Principal Repayment Terms, Period	1 year
Credit Card Receivable | Consumer Portfolio Segment | Maximum
Schedule of Financing Receivable Terms [Line Items]
Principal Repayment Terms, Period	5 years
Automobile Loan | Consumer Portfolio Segment | Minimum
Schedule of Financing Receivable Terms [Line Items]
Principal Repayment Terms, Period	3 years
Automobile Loan | Consumer Portfolio Segment | Maximum
Schedule of Financing Receivable Terms [Line Items]
Principal Repayment Terms, Period	7 years

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Loans Loan Categories and Past Due Loans(Details) - USD ($) $ in Thousands	Sep. 30, 2017	Dec. 31, 2016	Sep. 30, 2016
Financing Receivable, Recorded Investment, Aging [Abstract]
Financing Receivable, Recorded Investment, Past Due	$ 10,953	$ 11,899	$ 10,107
Current Loans	1,897,846	1,741,369	1,697,109
Total Loans	1,908,799	1,753,268	1,707,216
Loans 90 or More Days Past Due and Still Accruing Interest	967	1,201	548
Nonaccrual Loans	5,482	4,193	6,107
Financing Receivables, 30 to 59 Days Past Due
Financing Receivable, Recorded Investment, Aging [Abstract]
Financing Receivable, Recorded Investment, Past Due	7,020	8,194	4,102
Financing Receivables, 60 to 89 Days Past Due
Financing Receivable, Recorded Investment, Aging [Abstract]
Financing Receivable, Recorded Investment, Past Due	991	1,069	2,929
Financing Receivables, Equal to Greater than 90 Days Past Due
Financing Receivable, Recorded Investment, Aging [Abstract]
Financing Receivable, Recorded Investment, Past Due	2,942	2,636	3,076
Commercial
Financing Receivable, Recorded Investment, Aging [Abstract]
Financing Receivable, Recorded Investment, Past Due	224	289	265
Current Loans	125,136	104,866	102,789
Total Loans	125,360	105,155	103,054
Loans 90 or More Days Past Due and Still Accruing Interest	0	0	0
Nonaccrual Loans	609	155	160
Commercial | Financing Receivables, 30 to 59 Days Past Due
Financing Receivable, Recorded Investment, Aging [Abstract]
Financing Receivable, Recorded Investment, Past Due	122	112	38
Commercial | Financing Receivables, 60 to 89 Days Past Due
Financing Receivable, Recorded Investment, Aging [Abstract]
Financing Receivable, Recorded Investment, Past Due	0	29	67
Commercial | Financing Receivables, Equal to Greater than 90 Days Past Due
Financing Receivable, Recorded Investment, Aging [Abstract]
Financing Receivable, Recorded Investment, Past Due	102	148	160
Commercial Real Estate Portfolio Segment
Financing Receivable, Recorded Investment, Aging [Abstract]
Financing Receivable, Recorded Investment, Past Due	1,249	121	1,106
Current Loans	439,467	431,525	427,905
Total Loans	440,716	431,646	429,011
Loans 90 or More Days Past Due and Still Accruing Interest	0	0	0
Nonaccrual Loans	1,249	875	3,689
Commercial Real Estate Portfolio Segment | Financing Receivables, 30 to 59 Days Past Due
Financing Receivable, Recorded Investment, Aging [Abstract]
Financing Receivable, Recorded Investment, Past Due	442	121	0
Commercial Real Estate Portfolio Segment | Financing Receivables, 60 to 89 Days Past Due
Financing Receivable, Recorded Investment, Aging [Abstract]
Financing Receivable, Recorded Investment, Past Due	0	0	0
Commercial Real Estate Portfolio Segment | Financing Receivables, Equal to Greater than 90 Days Past Due
Financing Receivable, Recorded Investment, Aging [Abstract]
Financing Receivable, Recorded Investment, Past Due	807	0	1,106
Consumer Loans Financing
Financing Receivable, Recorded Investment, Aging [Abstract]
Financing Receivable, Recorded Investment, Past Due	5,986	7,004	5,548
Current Loans	586,043	530,357	518,155
Total Loans	592,029	537,361	523,703
Loans 90 or More Days Past Due and Still Accruing Interest	41	158	0
Nonaccrual Loans	507	589	532
Consumer Loans Financing | Financing Receivables, 30 to 59 Days Past Due
Financing Receivable, Recorded Investment, Aging [Abstract]
Financing Receivable, Recorded Investment, Past Due	4,781	5,593	3,793
Consumer Loans Financing | Financing Receivables, 60 to 89 Days Past Due
Financing Receivable, Recorded Investment, Aging [Abstract]
Financing Receivable, Recorded Investment, Past Due	914	898	1,412
Consumer Loans Financing | Financing Receivables, Equal to Greater than 90 Days Past Due
Financing Receivable, Recorded Investment, Aging [Abstract]
Financing Receivable, Recorded Investment, Past Due	291	513	343
Residential
Financing Receivable, Recorded Investment, Aging [Abstract]
Financing Receivable, Recorded Investment, Past Due	3,494	4,485	3,188
Current Loans	747,200	674,621	648,260
Total Loans	750,694	679,106	651,448
Loans 90 or More Days Past Due and Still Accruing Interest	926	1,043	548
Nonaccrual Loans	3,117	2,574	1,726
Residential | Financing Receivables, 30 to 59 Days Past Due
Financing Receivable, Recorded Investment, Aging [Abstract]
Financing Receivable, Recorded Investment, Past Due	1,675	2,368	271
Residential | Financing Receivables, 60 to 89 Days Past Due
Financing Receivable, Recorded Investment, Aging [Abstract]
Financing Receivable, Recorded Investment, Past Due	77	142	1,450
Residential | Financing Receivables, Equal to Greater than 90 Days Past Due
Financing Receivable, Recorded Investment, Aging [Abstract]
Financing Receivable, Recorded Investment, Past Due	$ 1,742	$ 1,975	$ 1,467

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Loans Allowance for Loan Losses (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016	Dec. 31, 2016
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Allowance for Loan Losses, Beginning Balance	$ 17,442	$ 16,798	$ 17,012	$ 16,038
Charge-offs	(622)	(367)	(1,197)	(784)
Recoveries	75	64	300	171
Provision	800	480	1,580	1,550
Allowance for Loan Losses, Ending Balance	17,695	16,975	17,695	16,975
Financing Receivable, Allowance for Credit Loss, Additional Information [Abstract]
Allowance for loan losses - Loans Individually Evaluated for Impairment	138	240	138	240	$ 0
Allowance for loan losses - Loans Collectively Evaluated for Impairment	17,557	16,735	17,557	16,735	17,012
Ending Loan Balance - Individually Evaluated for Impairment	3,275	3,945	3,275	3,945	2,079
Ending Loan Balance - Collectively Evaluated for Impairment	1,905,524	1,703,271	1,905,524	1,703,271	1,751,189
Commercial
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Allowance for Loan Losses, Beginning Balance	925	1,128	1,017	1,827
Charge-offs	0	(34)	(2)	(86)
Recoveries	1	5	8	20
Provision	(46)	(76)	(143)	(738)
Allowance for Loan Losses, Ending Balance	880	1,023	880	1,023
Financing Receivable, Allowance for Credit Loss, Additional Information [Abstract]
Allowance for loan losses - Loans Individually Evaluated for Impairment	104	0	104	0	0
Allowance for loan losses - Loans Collectively Evaluated for Impairment	776	1,023	776	1,023	1,017
Ending Loan Balance - Individually Evaluated for Impairment	489	0	489	0	0
Ending Loan Balance - Collectively Evaluated for Impairment	124,871	103,054	124,871	103,054	105,155
Commercial Real Estate Portfolio Segment
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Allowance for Loan Losses, Beginning Balance	4,983	5,816	5,677	4,520
Charge-offs	(342)	0	(342)	0
Recoveries	0	0	0	0
Provision	446	(75)	(248)	1,221
Allowance for Loan Losses, Ending Balance	5,087	5,741	5,087	5,741
Financing Receivable, Allowance for Credit Loss, Additional Information [Abstract]
Allowance for loan losses - Loans Individually Evaluated for Impairment	0	240	0	240	0
Allowance for loan losses - Loans Collectively Evaluated for Impairment	5,087	5,501	5,087	5,501	5,677
Ending Loan Balance - Individually Evaluated for Impairment	1,543	3,538	1,543	3,538	890
Ending Loan Balance - Collectively Evaluated for Impairment	439,172	425,473	439,172	425,473	430,756
Consumer Loans Financing
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Allowance for Loan Losses, Beginning Balance	7,305	5,742	6,120	5,554
Charge-offs	(280)	(243)	(847)	(591)
Recoveries	74	59	292	150
Provision	509	513	2,043	958
Allowance for Loan Losses, Ending Balance	7,608	6,071	7,608	6,071
Financing Receivable, Allowance for Credit Loss, Additional Information [Abstract]
Allowance for loan losses - Loans Individually Evaluated for Impairment	0	0	0	0	0
Allowance for loan losses - Loans Collectively Evaluated for Impairment	7,608	6,071	7,608	6,071	6,120
Ending Loan Balance - Individually Evaluated for Impairment	104	90	104	90	91
Ending Loan Balance - Collectively Evaluated for Impairment	591,925	523,613	591,925	523,613	537,270
Residential
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Allowance for Loan Losses, Beginning Balance	4,229	4,026	4,198	3,790
Charge-offs	0	(90)	(6)	(107)
Recoveries	0	0	0	1
Provision	(109)	166	(72)	418
Allowance for Loan Losses, Ending Balance	4,120	4,102	4,120	4,102
Financing Receivable, Allowance for Credit Loss, Additional Information [Abstract]
Allowance for loan losses - Loans Individually Evaluated for Impairment	34	0	34	0	0
Allowance for loan losses - Loans Collectively Evaluated for Impairment	4,086	4,102	4,086	4,102	4,198
Ending Loan Balance - Individually Evaluated for Impairment	1,139	317	1,139	317	1,098
Ending Loan Balance - Collectively Evaluated for Impairment	749,556	651,131	749,556	651,131	678,008
Unallocated
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Allowance for Loan Losses, Beginning Balance	0	86	0	347
Charge-offs	0	0	0	0
Recoveries	0	0	0	0
Provision	0	(48)	0	(309)
Allowance for Loan Losses, Ending Balance	0	38	0	38
Financing Receivable, Allowance for Credit Loss, Additional Information [Abstract]
Allowance for loan losses - Loans Individually Evaluated for Impairment	0	0	0	0	0
Allowance for loan losses - Loans Collectively Evaluated for Impairment	0	38	0	38	0
Ending Loan Balance - Individually Evaluated for Impairment	0	0	0	0	0
Ending Loan Balance - Collectively Evaluated for Impairment	$ 0	$ 0	$ 0	$ 0	$ 0

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Loans Credit Quality Indicators (Details) - USD ($) $ in Thousands	Sep. 30, 2017	Dec. 31, 2016	Sep. 30, 2016
Satisfactory
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable, Net	$ 532,307	$ 492,629	$ 486,600
Special Mention
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable, Net	2,795	8,367	11,746
Substandard
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable, Net	30,166	35,805	33,719
Doubtful
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable, Net	807	0	0
Performing
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable, Net	1,338,151	1,212,103	1,172,264
Nonperforming
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable, Net	4,573	4,364	2,887
Commercial | Satisfactory
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable, Net	120,622	95,722	93,903
Commercial | Special Mention
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable, Net	1,394	1,359	1,274
Commercial | Substandard
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable, Net	3,344	8,074	7,877
Commercial | Doubtful
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable, Net	0	0	0
Commercial Real Estate Portfolio Segment | Satisfactory
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable, Net	411,685	396,907	392,697
Commercial Real Estate Portfolio Segment | Special Mention
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable, Net	1,401	7,008	10,472
Commercial Real Estate Portfolio Segment | Substandard
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable, Net	26,822	27,731	25,842
Commercial Real Estate Portfolio Segment | Doubtful
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable, Net	807	0	0
Consumer Loans Financing | Performing
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable, Net	591,499	536,614	523,171
Consumer Loans Financing | Nonperforming
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable, Net	530	747	532
Residential | Performing
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable, Net	746,652	675,489	649,093
Residential | Nonperforming
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable, Net	$ 4,043	$ 3,617	$ 2,355

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Loans Impaired Loans (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016	Dec. 31, 2016
Recorded Investment:
With No Related Allowance	$ 1,773	$ 1,305	$ 1,773	$ 1,305	$ 2,079
With a Related Allowance		2,640		2,640	0
Unpaid Principal Balance:
With No Related Allowance	1,758	1,305	1,758	1,305	2,079
With a Related Allowance	1,500	2,640	1,500	2,640	0
Average Recorded Balance:
With No Related Allowance	1,921	1,945	1,927	2,296
With a Related Allowance	1,147	2,166	752	1,320
Interest Income Recognized:
With No Related Allowance	1	5	3	18
With a Related Allowance	0	0	4	0
Cash Basis Income:
With No Related Allowance	0	0	0	0
With a Related Allowance	0	0	0	0
Commercial
Recorded Investment:
With No Related Allowance	0	0	0	0	0
With a Related Allowance	489	0	489	0	0
Unpaid Principal Balance:
With No Related Allowance	0	0	0	0	0
With a Related Allowance	489	0	489	0	0
Average Recorded Balance:
With No Related Allowance	0	0	0	78
With a Related Allowance	496	0	245	0
Interest Income Recognized:
With No Related Allowance	0	0	0	0
With a Related Allowance	0	0	0	0
Cash Basis Income:
With No Related Allowance	0	0	0	0
With a Related Allowance	0	0	0	0
Commercial Real Estate Portfolio Segment
Recorded Investment:
With No Related Allowance	818	898	818	898	890
With a Related Allowance	725	2,640	725	2,640	0
Unpaid Principal Balance:
With No Related Allowance	818	898	818	898	890
With a Related Allowance	723	2,640	723	2,640	0
Average Recorded Balance:
With No Related Allowance	998	1,374	854	1,635
With a Related Allowance	363	2,166	363	1,320
Interest Income Recognized:
With No Related Allowance	0	3	0	14
With a Related Allowance	0	0	0	0
Cash Basis Income:
With No Related Allowance	0	0	0	0
With a Related Allowance	0	0	0	0
Consumer Portfolio Segment
Recorded Investment:
With No Related Allowance	104	90	104	90	91
With a Related Allowance	0	0	0	0	0
Unpaid Principal Balance:
With No Related Allowance	90	90	90	90	91
With a Related Allowance	0	0	0	0	0
Average Recorded Balance:
With No Related Allowance	96	92	98	102
With a Related Allowance	0	0	0	0
Interest Income Recognized:
With No Related Allowance	1	2	3	4
With a Related Allowance	0	0	0	0
Cash Basis Income:
With No Related Allowance	0	0	0	0
With a Related Allowance	0	0	0	0
Residential
Recorded Investment:
With No Related Allowance	851	317	851	317	1,098
With a Related Allowance	288	0	288	0	0
Unpaid Principal Balance:
With No Related Allowance	850	317	850	317	1,098
With a Related Allowance	288	0	288	0	$ 0
Average Recorded Balance:
With No Related Allowance	827	479	975	481
With a Related Allowance	288	0	144	0
Interest Income Recognized:
With No Related Allowance	0	0	0	0
With a Related Allowance	0	0	4	0
Cash Basis Income:
With No Related Allowance	0	0	0	0
With a Related Allowance	$ 0	$ 0	$ 0	$ 0

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Loans Loans Modified in Trouble Debt Restructurings (Details) - Entity Loan Modification Program - Payment Deferral $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2017 USD ($) contract	Sep. 30, 2016 USD ($) contract	Sep. 30, 2017 USD ($) contract	Sep. 30, 2016 USD ($) contract
Financing Receivable, Modifications [Line Items]
Number of Loans | contract	3	1	8	2
Pre-Modification Outstanding Recorded Investment	$ 750	$ 15	$ 1,279	$ 23
Post-Modification Outstanding Recorded Investment	$ 750	$ 15	$ 1,279	$ 23
Financing Receivable, Modification, Subsequent Default, Number of Contracts | contract	0	0	0	0
Financing Receivable, Modification, Subsequent Default, Recorded Investment	$ 0	$ 0	$ 0	$ 0
Commercial
Financing Receivable, Modifications [Line Items]
Number of Loans | contract	1	0	2	0
Pre-Modification Outstanding Recorded Investment	$ 725	$ 0	$ 1,228	$ 0
Post-Modification Outstanding Recorded Investment	$ 725	$ 0	$ 1,228	$ 0
Financing Receivable, Modification, Subsequent Default, Number of Contracts | contract	0	0	0	0
Financing Receivable, Modification, Subsequent Default, Recorded Investment	$ 0	$ 0	$ 0	$ 0
Commercial Real Estate Portfolio Segment
Financing Receivable, Modifications [Line Items]
Number of Loans | contract	0	0	0	0
Pre-Modification Outstanding Recorded Investment	$ 0	$ 0	$ 0	$ 0
Post-Modification Outstanding Recorded Investment	$ 0	$ 0	$ 0	$ 0
Financing Receivable, Modification, Subsequent Default, Number of Contracts | contract	0	0	0	0
Financing Receivable, Modification, Subsequent Default, Recorded Investment	$ 0	$ 0	$ 0	$ 0
Consumer Loans Financing
Financing Receivable, Modifications [Line Items]
Number of Loans | contract	2	1	6	2
Pre-Modification Outstanding Recorded Investment	$ 25	$ 15	$ 51	$ 23
Post-Modification Outstanding Recorded Investment	$ 25	$ 15	$ 51	$ 23
Financing Receivable, Modification, Subsequent Default, Number of Contracts | contract	0	0	0	0
Financing Receivable, Modification, Subsequent Default, Recorded Investment	$ 0	$ 0	$ 0	$ 0
Residential
Financing Receivable, Modifications [Line Items]
Number of Loans | contract	0	0	0	0
Pre-Modification Outstanding Recorded Investment	$ 0	$ 0	$ 0	$ 0
Post-Modification Outstanding Recorded Investment	$ 0	$ 0	$ 0	$ 0
Financing Receivable, Modification, Subsequent Default, Number of Contracts | contract	0	0	0	0
Financing Receivable, Modification, Subsequent Default, Recorded Investment	$ 0	$ 0	$ 0	$ 0

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Guarantees (Details) - USD ($) $ in Thousands	Sep. 30, 2017	Dec. 31, 2016	Sep. 30, 2016
Commitments to Extend Credit
Loan Commitments and Letters of Credit [Line Items]
Notional Amount	$ 316,449	$ 296,442	$ 300,439
Fair Value	0	0	0
Standby Letters of Credit
Loan Commitments and Letters of Credit [Line Items]
Notional Amount	3,672	3,445	3,483
Fair Value	$ 18	$ 30	$ 31
Minimum | Standby Letters of Credit
Loan Commitments and Letters of Credit [Line Items]
Loans And Leases Receivable, Loan Commitments, Fixed Fees, Percent	1.00%
Maximum | Standby Letters of Credit
Loan Commitments and Letters of Credit [Line Items]
Loans And Leases Receivable, Loan Commitments, Fixed Fees, Percent	3.00%

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Comprehensive Income Other Comprehensive Income (Details) - USD ($) $ in Thousands		3 Months Ended				9 Months Ended
		Sep. 30, 2017		Sep. 30, 2016		Sep. 30, 2017		Sep. 30, 2016
Schedule of Comprehensive Income [Line Items]
Net Unrealized Securities Holding Gains Arising During the Period		$ 9	[1]	$ (810)	[1]	$ 465		$ 2,309	[1]
Other Comprehensive Income (Loss), Reclassification Adjustment from AOCI for Sale of Securities, Net of Tax		6	[1]	0	[1]	6	[2]	88	[1]
Amortization of Net Retirement Plan Actuarial Loss		(64)	[1]	(111)	[1]	(245)		(314)	[1]
Accretion of Net Retirement Plan Prior Service Credit		2	[1]	1	[1]	5		5	[1]
Other Comprehensive Income, before Tax		172		(1,086)		1,268		4,220
Other Comprehensive Income, Tax		(107)		386		(569)		(1,690)
Other Comprehensive Income	[2]	65		(700)		699		2,530
Unrealized Gains and Losses on Available for Sale Securities
Schedule of Comprehensive Income [Line Items]
Other Comprehensive Income Gain (Loss) Before Reclassifications Before Tax		6		(1,264)		749		3,868
Other Comprehensive Income Gain (Loss) Before Reclassifications Tax (Expense) Benefit		3		454		(284)		(1,559)
Net Unrealized Securities Holding Gains Arising During the Period		9		(810)		465		2,309
Reclassification From Accumulated Other Comprehensive Income Current Period Before Tax		(10)		0		(10)		(144)
Reclassification From Accumulated Other Comprehensive Income Current Period Tax (Expense) Benefit		4		0		4		56
Other Comprehensive Income (Loss), Reclassification Adjustment from AOCI for Sale of Securities, Net of Tax		(6)		0		(6)		(88)
Other Comprehensive Income		3		(810)		459		2,221
Amortization of Net Retirement Plan Actuarial Loss
Schedule of Comprehensive Income [Line Items]
Reclassification From Accumulated Other Comprehensive Income Current Period Before Tax		179		181		537		503
Reclassification From Accumulated Other Comprehensive Income Current Period Tax (Expense) Benefit		(115)		(70)		(292)		(189)
Amortization of Net Retirement Plan Actuarial Loss		64		111		245		314
Other Comprehensive Income		64		111		245		314
Accretion of Net Retirement Plan Prior Service Credit
Schedule of Comprehensive Income [Line Items]
Reclassification From Accumulated Other Comprehensive Income Current Period Before Tax		(3)		(3)		(8)		(7)
Reclassification From Accumulated Other Comprehensive Income Current Period Tax (Expense) Benefit		1		2		3		2
Accretion of Net Retirement Plan Prior Service Credit		(2)		(1)		(5)		(5)
Other Comprehensive Income		$ (2)		$ (1)		$ (5)		$ (5)

[1] All amounts are net of tax. Amounts in parentheses indicate debits.

[2] These accumulated other comprehensive income components are included in the computation of net periodic pension cost.

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Comprehensive Income Changes in Accumulated Other Comprehensive Income By Component (Details) - USD ($) $ in Thousands		3 Months Ended		9 Months Ended
		Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016
AOCI Including Portion Attributable to Noncontrolling Interest, Net of Tax [Roll Forward]
Net current-period other comprehensive income	[1]	$ 65	$ (700)	$ 699	$ 2,530
Unrealized Gains and Losses on Available for Sale Securities
AOCI Including Portion Attributable to Noncontrolling Interest, Net of Tax [Roll Forward]
Stockholders' Equity, Period Start		74	3,660	(382)	629
Other comprehensive income or loss before reclassifications		9	(810)	465	2,309
Amounts reclassified from accumulated other comprehensive income		(6)	0	(6)	(88)
Net current-period other comprehensive income		3	(810)	459	2,221
Stockholders' Equity, Period End		77	2,850	77	2,850
Amortization of Net Retirement Plan Actuarial Loss
AOCI Including Portion Attributable to Noncontrolling Interest, Net of Tax [Roll Forward]
Stockholders' Equity, Period Start		(5,556)	(7,690)	(5,737)	(7,893)
Other comprehensive income or loss before reclassifications		0	0	0	0
Amounts reclassified from accumulated other comprehensive income		64	111	245	314
Net current-period other comprehensive income		64	111	245	314
Stockholders' Equity, Period End		(5,492)	(7,579)	(5,492)	(7,579)
Accretion of Net Retirement Plan Prior Service Credit
AOCI Including Portion Attributable to Noncontrolling Interest, Net of Tax [Roll Forward]
Stockholders' Equity, Period Start		(718)	(712)	(715)	(708)
Other comprehensive income or loss before reclassifications		0	0	0	0
Amounts reclassified from accumulated other comprehensive income		(2)	(1)	(5)	(5)
Net current-period other comprehensive income		(2)	(1)	(5)	(5)
Stockholders' Equity, Period End		(720)	(713)	(720)	(713)
AOCI Including Portion Attributable to Noncontrolling Interest
AOCI Including Portion Attributable to Noncontrolling Interest, Net of Tax [Roll Forward]
Stockholders' Equity, Period Start		(6,200)	(4,742)	(6,834)	(7,972)
Other comprehensive income or loss before reclassifications		9	(810)	465	2,309
Amounts reclassified from accumulated other comprehensive income		56	110	234	221
Net current-period other comprehensive income		65	(700)	699	2,530
Stockholders' Equity, Period End		$ (6,135)	$ (5,442)	$ (6,135)	$ (5,442)

[1] These accumulated other comprehensive income components are included in the computation of net periodic pension cost.

XML

Comprehensive Income Reclassification out of Accumulated Other Comprehensive Income (Details) - USD ($) $ in Thousands	3 Months Ended				9 Months Ended
	Sep. 30, 2017		Sep. 30, 2016		Sep. 30, 2017		Sep. 30, 2016
Reclassification out of Accumulated Other Comprehensive Income [Line Items]
Amortization of Net Retirement Plan Actuarial Loss	$ 64	[1]	$ 111	[1]	$ 245		$ 314	[1]
Income before provision for income taxes	10,443		9,429		29,990		28,490
Provision for Income Taxes	3,027		2,691		8,735		8,556
Net Income	(56)		(110)		(234)		(221)
Reclassification out of Accumulated Other Comprehensive Income | Unrealized Gains and Losses on Available for Sale Securities
Reclassification out of Accumulated Other Comprehensive Income [Line Items]
Gain on Securities Transactions	10		0		10		144
Income before provision for income taxes	10		0		10		144
Provision for Income Taxes	(4)		0		(4)		(56)
Net Income	6		0		6		88
Reclassification out of Accumulated Other Comprehensive Income | Accumulated Defined Benefit Plans Adjustment
Reclassification out of Accumulated Other Comprehensive Income [Line Items]
Amortization of Net Retirement Plan Actuarial Loss	3	[2],[3]	3	[2],[3]	8	[2],[3]	7
Amortization of Net Retirement Plan Actuarial Loss, Before-Tax Amount	(179)	[2],[3]	(181)	[2],[3]	(537)	[2],[3]	(503)
Income before provision for income taxes	(176)		(178)		(529)		(496)
Provision for Income Taxes	114		68		289		187
Net Income	$ (62)		$ (110)		$ (240)		$ (309)

[1] All amounts are net of tax. Amounts in parentheses indicate debits.

[2] Amounts in parentheses indicate debits to profit/loss.

[3] These accumulated other comprehensive income components are included in the computation of net periodic pension cost.

XML

Stock Based Compensation Plan (Details)	9 Months Ended
	Sep. 30, 2017 $ / shares shares
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]
Award vesting period (in years)	4 years
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding [Roll Forward]
Outstanding, Beginning of Period, in shares | shares	366,329
Granted, in shares | shares	55,621
Exercised, in shares | shares	(35,937)
Forfeited, in shares | shares	0
Outstanding, End of Period, in shares | shares	386,013
Exercisable at Period End, in shares | shares	242,706
Vested and Expected to Vest, in shares | shares	143,307
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Exercise Price [Roll Forward]
Outstanding at Beginning of Period, in dollars per share	$ 21.86
Granted, in dollars per share	36.12
Exercised, in dollars per share	20.46
Forfeited, in dollars per share	0.00
Outstanding, End of Period, in dollars per share	24.05
Exercisable at Period End, in dollars per share	21.34
Vested and Expected to Vest, in dollars per share	28.62
Fair Value, in dollars per share	$ 6.25
Dividend Yield	2.72%
Expected Volatility	21.40%
Risk Free Interest Rate	2.25%
Expected Lives, in years	6 years 10 months 18 days

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Stock Based Compensation Expense (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]
Share-Based Compensation Expense	$ 90	$ 71	$ 262	$ 215
Employee Stock
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Discount from market price, percent			5.00%

XML

Retirement Plans (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016
Employees' Pension Plan
Net Periodic Benefit Cost [Line Items]
Service Cost	$ 350	$ 376	$ 1,050	$ 1,127
Interest Cost	362	420	1,085	1,262
Expected Return on Plan Assets	(800)	(828)	(2,399)	(2,483)
Amortization of Prior Service (Credit) Cost	(14)	(14)	(43)	(42)
Amortization of Net Loss	148	140	443	419
Net Periodic Benefit Cost	46	94	136	283
Plan Contributions During the Period	0	0	0	0
Estimated Future Contributions in the Current Fiscal Year			0
Select Executive Retirement Plan
Net Periodic Benefit Cost [Line Items]
Service Cost	10	8	30	24
Interest Cost	55	56	164	163
Expected Return on Plan Assets	0	0	0	0
Amortization of Prior Service (Credit) Cost	14	14	43	43
Amortization of Net Loss	31	28	94	84
Net Periodic Benefit Cost	110	106	331	314
Plan Contributions During the Period	116	131	345	350
Estimated Future Contributions in the Current Fiscal Year			115
Post-Retirement Benefit Plans
Net Periodic Benefit Cost [Line Items]
Service Cost	37	63	110	188
Interest Cost	75	83	224	178
Expected Return on Plan Assets	0	0	0	0
Amortization of Prior Service (Credit) Cost	(3)	(3)	(8)	(8)
Amortization of Net Loss	0	0	0	0
Net Periodic Benefit Cost	109	143	326	358
Plan Contributions During the Period	$ 65	$ 47	295	$ 197
Estimated Future Contributions in the Current Fiscal Year			$ 98

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Earnings Per Common Share (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands		3 Months Ended				9 Months Ended
		Sep. 30, 2017		Sep. 30, 2016		Sep. 30, 2017		Sep. 30, 2016		Sep. 28, 2017
Earnings Per Share [Abstract]
Stock dividend, percent										3.00%
Net Income		$ 7,416		$ 6,738		$ 21,255		$ 19,934
Basic, in shares		13,889	[1]	13,810	[2]	13,889	[1]	13,775	[2]
Basic Earnings, in dollars per share		$ 0.53	[1]	$ 0.49	[2]	$ 1.53	[1]	$ 1.45	[2]
Dilutive Average Shares Attributable to Stock Options	[1]	77		91		92		67
Diluted, in shares	[2]	13,966	[1]	13,901		13,981	[1]	13,842
Diluted Earnings, in dollars per share		$ 0.53	[1]	$ 0.48	[2]	$ 1.52	[1]	$ 1.44	[2]

[1] Cash dividends paid per share have been adjusted for the September 28, 2017 3% stock dividend.

[2] Share and Per Share Amounts have been restated for the September 28, 2017 3% stock dividend.

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Fair Value of Financial Instruments Fair Value - Recurring and Nonrecurring (Details) - USD ($) $ in Thousands	Sep. 30, 2017	Dec. 31, 2016	Sep. 30, 2016
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-Sale	$ 315,459	$ 346,996	$ 339,190
Available-for-sale Securities, Amortized Cost Basis	315,329	347,615	334,291
With a Related Allowance		0	2,640
Fair Value, Measurements, Recurring
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-Sale	315,459	346,996	339,190
Fair Value, Measurements, Recurring | Quoted Prices In Active Markets for Indentical Assets (Level 1)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-Sale	64,730	54,706	0
Fair Value, Measurements, Recurring | Significant Other Observable Inputs (Level 2)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-Sale	250,729	292,290	339,190
Fair Value, Measurements, Recurring | Significant Unobservable Inputs (Level 3)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-Sale	0	0	0
Fair Value, Measurements, Nonrecurring
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired Loans	1,502	0	2,640
Gain (Loss) on Collateral Dependent Impaired Loans	(138)	0	(240)
Other Real Estate and Repossessed Assets, Net	1,713	1,686	1,016
Gain (Loss) Other Real Estate and Repossessed Assets, Net	(655)	(587)	(319)
Fair Value, Measurements, Nonrecurring | Quoted Prices In Active Markets for Indentical Assets (Level 1)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired Loans	0	0	0
Other Real Estate and Repossessed Assets, Net	0	0	0
Fair Value, Measurements, Nonrecurring | Significant Other Observable Inputs (Level 2)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired Loans	0	0	0
Other Real Estate and Repossessed Assets, Net	0	0	0
Fair Value, Measurements, Nonrecurring | Significant Unobservable Inputs (Level 3)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired Loans	1,502	0	2,640
Other Real Estate and Repossessed Assets, Net	1,713	1,686	1,016
U.S. Agency Obligations
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-Sale	146,978	147,377	153,926
Available-for-sale Securities, Amortized Cost Basis	146,976	147,110	152,511
U.S. Agency Obligations | Fair Value, Measurements, Recurring
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-Sale	146,978	147,377	153,926
U.S. Agency Obligations | Fair Value, Measurements, Recurring | Quoted Prices In Active Markets for Indentical Assets (Level 1)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-Sale	64,730	54,706	0
U.S. Agency Obligations | Fair Value, Measurements, Recurring | Significant Other Observable Inputs (Level 2)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-Sale	82,248	92,671	153,926
U.S. Agency Obligations | Fair Value, Measurements, Recurring | Significant Unobservable Inputs (Level 3)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-Sale	0	0	0
State and Municipal Obligations
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-Sale	11,902	27,690	31,628
Available-for-sale Securities, Amortized Cost Basis	11,875	27,684	31,562
State and Municipal Obligations | Fair Value, Measurements, Recurring
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-Sale	11,902	27,690	31,628
State and Municipal Obligations | Fair Value, Measurements, Recurring | Quoted Prices In Active Markets for Indentical Assets (Level 1)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-Sale	0	0	0
State and Municipal Obligations | Fair Value, Measurements, Recurring | Significant Other Observable Inputs (Level 2)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-Sale	11,902	27,690	31,628
State and Municipal Obligations | Fair Value, Measurements, Recurring | Significant Unobservable Inputs (Level 3)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-Sale	0	0	0
Mortgage-Backed Securities - Residential | Fair Value, Measurements, Recurring
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-Sale	152,806	167,239	148,087
Mortgage-Backed Securities - Residential | Fair Value, Measurements, Recurring | Quoted Prices In Active Markets for Indentical Assets (Level 1)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-Sale	0	0	0
Mortgage-Backed Securities - Residential | Fair Value, Measurements, Recurring | Significant Other Observable Inputs (Level 2)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-Sale	152,806	167,239	148,087
Mortgage-Backed Securities - Residential | Fair Value, Measurements, Recurring | Significant Unobservable Inputs (Level 3)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-Sale	0	0	0
Corporate and Other Debt Securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-Sale	2,299	3,308	4,299
Available-for-sale Securities, Amortized Cost Basis	2,500	3,512	4,500
Corporate and Other Debt Securities | Fair Value, Measurements, Recurring
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-Sale	2,299	3,308	4,299
Corporate and Other Debt Securities | Fair Value, Measurements, Recurring | Quoted Prices In Active Markets for Indentical Assets (Level 1)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-Sale	0	0	0
Corporate and Other Debt Securities | Fair Value, Measurements, Recurring | Significant Other Observable Inputs (Level 2)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-Sale	2,299	3,308	4,299
Corporate and Other Debt Securities | Fair Value, Measurements, Recurring | Significant Unobservable Inputs (Level 3)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-Sale	0	0	0
Mutual Funds and Equity Securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-Sale	1,474	1,382	1,250
Available-for-sale Securities, Amortized Cost Basis	1,120	1,120	1,120
Mutual Funds and Equity Securities | Fair Value, Measurements, Recurring
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-Sale	1,474	1,382	1,250
Available-for-sale Securities, Amortized Cost Basis	1,500
Mutual Funds and Equity Securities | Fair Value, Measurements, Recurring | Quoted Prices In Active Markets for Indentical Assets (Level 1)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-Sale	0	0	0
Mutual Funds and Equity Securities | Fair Value, Measurements, Recurring | Significant Other Observable Inputs (Level 2)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-Sale	1,474	1,382	1,250
Mutual Funds and Equity Securities | Fair Value, Measurements, Recurring | Significant Unobservable Inputs (Level 3)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-Sale	$ 0	$ 0	$ 0

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Fair Value of Financial Instruments Fair Value by Balance Sheet Grouping (Details) - USD ($) $ in Thousands	Sep. 30, 2017	Dec. 31, 2016	Sep. 30, 2016	Dec. 31, 2015
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Cash and Cash Equivalents	$ 80,666	$ 57,355	$ 102,059	$ 51,068
Available-for-Sale	315,459	346,996	339,190
Held-to-Maturity at Amortized Cost	341,526	345,427	338,238
Held-To-Maturity Securities, at Fair Value	343,899	343,751	347,441
Federal Home Loan Bank and Federal Reserve Bank Stock	6,704	10,912	5,371
Net Loans	1,891,104	1,736,256	1,690,241
Deposits	2,307,116	2,116,546	2,213,187
Federal Funds Purchased and Securities Sold Under Agreements to Repurchase	61,419	35,836	38,589
Federal Home Loan Bank Overnight Advances	33,000	123,000	0
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
Carrying Amount
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Cash and Cash Equivalents	80,666		102,059
Net Loans	1,891,104	1,736,256	1,690,241
Accrued Interest Receivable	7,692	6,684	7,046
Deposits	2,307,116	2,116,546	2,213,187
Accrued Interest Payable	260	247	247
Fair Value
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Cash and Cash Equivalents, Fair Value Disclosure	80,666	57,355	102,059
Available-for-Sale	315,459	346,996	339,190
Held-To-Maturity Securities, at Fair Value	343,899	343,751	347,441
Federal Home Loan Bank and Federal Reserve Bank Stock, Fair Value Disclosure	6,704	10,912	5,371
Net Loans, Fair Value Disclosure	1,870,379	1,720,078	1,696,929
Accrued Interest Receivable, Fair Value Disclosure	7,692	6,684	7,046
Deposits, Fair Value Disclosure	2,299,011	2,109,557	2,207,985
Federal Funds Purchased and Securities Sold under Agreements to Repurchase, Fair Value Disclosure	61,419	35,836	38,589
Federal Funds Purchased, Fair Value Disclosure	33,000	123,000	0
Federal Home Loan Bank Term Advances, Fair Value Disclosure	55,110	55,118	55,955
Junior Subordinated Obligations Issued to Unconsolidated Subsidiary Trusts, Fair Value Disclosure	20,000	20,000	20,000
Accrued Interest Payable, Fair Value Disclosure	260	247	247
Quoted Prices In Active Markets for Indentical Assets (Level 1) | Fair Value
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Cash and Cash Equivalents, Fair Value Disclosure	80,666	57,355	102,059
Available-for-Sale	64,730	54,706	0
Held-To-Maturity Securities, at Fair Value	0	0	0
Federal Home Loan Bank and Federal Reserve Bank Stock, Fair Value Disclosure	0	0	0
Net Loans, Fair Value Disclosure	0	0	0
Accrued Interest Receivable, Fair Value Disclosure	0	0	0
Deposits, Fair Value Disclosure	0	0	0
Federal Funds Purchased and Securities Sold under Agreements to Repurchase, Fair Value Disclosure	0	0	0
Federal Funds Purchased, Fair Value Disclosure	0	0	0
Federal Home Loan Bank Term Advances, Fair Value Disclosure	0	0	0
Junior Subordinated Obligations Issued to Unconsolidated Subsidiary Trusts, Fair Value Disclosure	0	0	0
Accrued Interest Payable, Fair Value Disclosure	0	0	0
Significant Other Observable Inputs (Level 2) | Fair Value
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Cash and Cash Equivalents, Fair Value Disclosure	0	0	0
Available-for-Sale	250,729	292,290	339,190
Held-To-Maturity Securities, at Fair Value	343,899	343,751	347,441
Federal Home Loan Bank and Federal Reserve Bank Stock, Fair Value Disclosure	6,704	10,912	5,371
Net Loans, Fair Value Disclosure	0	0	0
Accrued Interest Receivable, Fair Value Disclosure	7,692	6,684	7,046
Deposits, Fair Value Disclosure	2,299,011	2,109,557	2,207,985
Federal Funds Purchased and Securities Sold under Agreements to Repurchase, Fair Value Disclosure	61,419	35,836	38,589
Federal Funds Purchased, Fair Value Disclosure	33,000	123,000	0
Federal Home Loan Bank Term Advances, Fair Value Disclosure	55,110	55,118	55,955
Junior Subordinated Obligations Issued to Unconsolidated Subsidiary Trusts, Fair Value Disclosure	20,000	20,000	20,000
Accrued Interest Payable, Fair Value Disclosure	260	247	247
Significant Unobservable Inputs (Level 3) | Fair Value
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Cash and Cash Equivalents, Fair Value Disclosure	0	0	0
Available-for-Sale	0	0	0
Held-To-Maturity Securities, at Fair Value	0	0	0
Federal Home Loan Bank and Federal Reserve Bank Stock, Fair Value Disclosure	0	0	0
Net Loans, Fair Value Disclosure	1,870,379	1,720,078	1,696,929
Accrued Interest Receivable, Fair Value Disclosure	0	0	0
Deposits, Fair Value Disclosure	0	0	0
Federal Funds Purchased and Securities Sold under Agreements to Repurchase, Fair Value Disclosure	0	0	0
Federal Funds Purchased, Fair Value Disclosure	0	0	0
Federal Home Loan Bank Term Advances, Fair Value Disclosure	0	0	0
Junior Subordinated Obligations Issued to Unconsolidated Subsidiary Trusts, Fair Value Disclosure	0	0	0
Accrued Interest Payable, Fair Value Disclosure	$ 0	$ 0	$ 0