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 March 31, 2020

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

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class	Trading Symbol	Name of Each Exchange on Which Registered
Common Stock, Par Value $1.00 per share	AROW	NASDAQ Global Select Market

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 every Interactive Data File required to be submitted 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 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
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standard provided pursuant to Section 13(a) of the Exchange Act. __

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

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

Class	Outstanding as of April 30, 2020
Common Stock, par value $1.00 per share	14,983,674

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	40
Item 3. Quantitative and Qualitative Disclosures About Market Risk	62
Item 4. Controls and Procedures	62
PART II - OTHER INFORMATION
Item 1. Legal Proceedings	63
Item 1.A. Risk Factors	63
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	63
Item 3. Defaults Upon Senior Securities	63
Item 4. Mine Safety Disclosures	63
Item 5. Other Information	64
Item 6. Exhibits	64
SIGNATURES	65

# 2

PART I - FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

ARROW FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In Thousands, Except Share and Per Share Amounts) (Unaudited)
	March 31, 2020			December 31, 2019			March 31, 2019
ASSETS
Cash and Due From Banks	$	32,525		$	47,035		$	36,198
Interest-Bearing Deposits at Banks	106,004			23,186			25,031
Investment Securities:
Available-for-Sale at Fair Value	378,186			357,334			298,812
Held-to-Maturity (Approximate Fair Value of $242,804 at March 31, 2020; $249,618 at December 31, 2019; and $280,414 at March 31, 2019)	238,520			245,065			279,400
Equity Securities	1,689			2,063			1,850
FHLB and Federal Reserve Bank Stock	5,379			10,317			7,878
Loans	2,414,193			2,386,120			2,235,208
Allowance for Loan Losses	(23,637		)	(21,187		)	(20,373		)
Net Loans	2,390,556			2,364,933			2,214,835
Premises and Equipment, Net	40,987			40,629			34,949
Goodwill	21,873			21,873			21,873
Other Intangible Assets, Net	1,640			1,661			1,777
Other Assets	73,973			70,179			62,280
Total Assets	$	3,291,332		$	3,184,275		$	2,984,883
LIABILITIES
Noninterest-Bearing Deposits	$	489,151		$	484,944		$	453,089
Interest-Bearing Checking Accounts	793,425			689,221			823,301
Savings Deposits	1,146,683			1,046,568			866,861
Time Deposits over $250,000	135,854			123,968			83,834
Other Time Deposits	245,892			271,353			263,012
Total Deposits	2,811,005			2,616,054			2,490,097
Federal Funds Purchased and Securities Sold Under Agreements to Repurchase	57,909			51,099			58,407
Federal Home Loan Bank Overnight Advances	—			130,000			74,500
Federal Home Loan Bank Term Advances	50,000			30,000			35,000
Junior Subordinated Obligations Issued to Unconsolidated Subsidiary Trusts	20,000			20,000			20,000
Finance Leases	5,249			5,254			2,946
Other Liabilities	37,771			30,140			27,324
Total Liabilities	2,981,934			2,882,547			2,708,274
STOCKHOLDERS’ EQUITY
Preferred Stock, $1 Par Value and 1,000,000 Shares Authorized at March 31, 2020 and December 31, 2019; $5 Par Value and 1,000,000 Shares Authorized at March 31, 2019	—			—			—
Common Stock, $1 Par Value; 30,000,000 Shares Authorized at March 31, 2020 and December 31, 2019 and 20,000,000 Shares Authorized at March 31, 2019 (19,606,449 Shares Issued at March 31, 2020 and December 31, 2019 and 19,035,565 at March 31, 2019)	19,606			19,606			19,035
Additional Paid-in Capital	336,021			335,355			315,262
Retained Earnings	37,441			33,218			34,231
Unallocated ESOP Shares (None at March 31, 2020 and December 31, 2019 and 5,501 Shares at March 31, 2019)	—			—			(100		)
Accumulated Other Comprehensive Loss	(2,412		)	(6,357		)	(11,567		)
Treasury Stock, at Cost (4,624,348 Shares at March 31, 2020; 4,608,258 Shares at December 31, 2019 and 4,556,083 Shares at March 31, 2019)	(81,258		)	(80,094		)	(80,252		)
Total Stockholders’ Equity	309,398			301,728			276,609
Total Liabilities and Stockholders’ Equity	$	3,291,332		$	3,184,275		$	2,984,883

See Notes to Unaudited Interim Consolidated Financial Statements.

# 3

ARROW FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (In Thousands, Except Per Share Amounts) (Unaudited)
	Three Months Ended March 31
	2020			2019
INTEREST AND DIVIDEND INCOME
Interest and Fees on Loans	$	24,874		$	22,403
Interest on Deposits at Banks	124			195
Interest and Dividends on Investment Securities:
Fully Taxable	2,193			2,369
Exempt from Federal Taxes	1,035			1,246
Total Interest and Dividend Income	28,226			26,213
INTEREST EXPENSE
Interest-Bearing Checking Accounts	487			482
Savings Deposits	2,471			1,601
Time Deposits over $250,000	533			396
Other Time Deposits	1,000			713
Federal Funds Purchased and Securities Sold Under Agreements to Repurchase	22			22
Federal Home Loan Bank Advances	429			1,594
Junior Subordinated Obligations Issued to Unconsolidated Subsidiary Trusts	228			269
Interest on Financing Leases	50			15
Total Interest Expense	5,220			5,092
NET INTEREST INCOME	23,006			21,121
Provision for Loan Losses	2,772			472
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES	20,234			20,649
NONINTEREST INCOME
Income From Fiduciary Activities	2,213			2,107
Fees for Other Services to Customers	2,451			2,402
Insurance Commissions	1,632			1,719
Net (Loss) Gain on Securities	(374		)	76
Net Gain on Sales of Loans	213			104
Other Operating Income	1,559			479
Total Noninterest Income	7,694			6,887
NONINTEREST EXPENSE
Salaries and Employee Benefits	10,383			9,319
Occupancy Expenses, Net	1,449			1,420
Technology and Equipment Expense	3,352			3,141
FDIC Assessments	219			212
Other Operating Expense	2,351			2,560
Total Noninterest Expense	17,754			16,652
INCOME BEFORE PROVISION FOR INCOME TAXES	10,174			10,884
Provision for Income Taxes	2,047			2,150
NET INCOME	$	8,127		$	8,734
Average Shares Outstanding 1:
Basic	14,996			14,903
Diluted	15,026			14,956
Per Common Share:
Basic Earnings	$	0.54		$	0.59
Diluted Earnings	0.54			0.58

¹2019 Share and Per Share Amounts have been restated for the September 27, 20193% stock dividend.

See Notes to Unaudited Interim Consolidated Financial Statements.

# 4

ARROW FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In Thousands) (Unaudited)
	Three Months Ended March 31,
	2020			2019
Net Income	$	8,127		$	8,734
Other Comprehensive Income, Net of Tax:
Net Unrealized Securities Holding Gains Arising During the Period	4,098			2,080
Net Unrealized Loss on Cash Flow Hedge Agreements	(219		)	—
Amortization of Net Retirement Plan Actuarial Loss	27			121
Amortization of Net Retirement Plan Prior Service Cost	39			42
Other Comprehensive Income	3,945			2,243
Comprehensive Income	$	12,072		$	10,977

See Notes to Unaudited Interim Consolidated Financial Statements.

# 5

ARROW FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(In Thousands, Except Share and Per Share Amounts)

(Unaudited)

	Three-Month Period Ended March 31, 2020
	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, 2019	$	19,606	$	335,355	$	33,218		$	—	$	(6,357	)	$	(80,094	)	$	301,728
Net Income	—		—		8,127			—		—			—			8,127
Other Comprehensive Income	—		—		—			—		3,945			—			3,945
Cash Dividends Paid, $.26 per Share	—		—		(3,904		)	—		—			—			(3,904		)
Stock Options Exercised, Net  (14,282 Shares)	—		199		—			—		—			144			343
Shares Issued Under the Employee Stock   Purchase Plan  (3,648 Shares)	—		84		—			—		—			37			121
Shares Issued for Dividend   Reinvestment Plans (16,001 Shares)	—		280		—			—		—			162			442
Stock-Based Compensation Expense	—		103		—			—		—			—			103
Purchase of Treasury Stock   (50,021 Shares)	—		—		—			—		—			(1,507		)	(1,507		)
Balance at March 31, 2020	$	19,606	$	336,021	$	37,441		$	—	$	(2,412	)	$	(81,258	)	$	309,398

	Three-Month Period Ended March 31, 2019
Balance at December 31, 2018	$	19,035	$	314,533	$	29,257		$	(100	)	$	(13,810	)	$	(79,331	)	$	269,584
Net Income	—		—		8,734			—			—			—			8,734
Other Comprehensive Loss	—		—		—			—			2,243			—			2,243
Cash Dividends Paid, $.252 per Share 1	—		—		(3,760		)	—			—			—			(3,760		)
Stock Options Exercised, Net (26,135 Shares)	—		249		—			—			—			286			535
Shares Issued Under the Employee Stock   Purchase Plan  (3,709 Shares)	—		76		—			—			—			41			117
Shares Issued for Dividend   Reinvestment Plans (13,132 Shares)	—		309		—			—			—			144			453
Stock-Based Compensation Expense	—		95		—			—			—			—			95
Purchase of Treasury Stock  (40,852 Shares)	—		—		—			—			—			(1,392		)	(1,392		)
Balance at March 31, 2019	$	19,035	$	315,262	$	34,231		$	(100	)	$	(11,567	)	$	(80,252	)	$	276,609

¹ Cash dividends paid per share have been adjusted for the September 27, 20193% stock dividend.

See Notes to Unaudited Interim Consolidated Financial Statements.

# 6

ARROW FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in Thousands)

	Three Months Ended March 31,
Cash Flows from Operating Activities:	2020			2019
Net Income	$	8,127		$	8,734
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
Provision for Loan Losses	2,772			472
Depreciation and Amortization	1,597			1,309
Net Loss (Gain) on Securities Transactions	374			(76		)
Loans Originated and Held-for-Sale	(9,322		)	(4,223		)
Proceeds from the Sale of Loans Held-for-Sale	7,975			3,718
Net Gain on the Sale of Loans	(213		)	(104		)
Net (Gain) Loss on the Sale of Premises and Equipment, Other Real Estate Owned and Repossessed Assets	(91		)	130
Contributions to Retirement Benefit Plans	(195		)	(153		)
Deferred Income Tax Benefit	(873		)	(297		)
Stock-Based Compensation Expense	103			95
Tax Benefit from Exercise of Stock Options	28			78
Net Increase in Other Assets	(5,719		)	(1,565		)
Net Increase in Other Liabilities	8,563			2,613
Net Cash Provided By Operating Activities	13,126			10,731
Cash Flows from Investing Activities:
Proceeds from the Maturities and Calls of Securities Available-for-Sale	17,444			21,261
Purchases of Securities Available-for-Sale	(33,201		)	—
Proceeds from the Maturities and Calls of Securities Held-to-Maturity	7,075			5,319
Purchases of Securities Held-to-Maturity	(717		)	(1,457		)
Net Increase in Loans	(27,317		)	(39,545		)
Proceeds from the Sales of Premises and Equipment, Other Real Estate Owned and Repossessed Assets	781			442
Purchase of Premises and Equipment	(1,072		)	(2,099		)
Net Decrease in Other Investments	4,938			7,628
Net Cash Used By Investing Activities	(32,069		)	(8,451		)
Cash Flows from Financing Activities:
Net Increase in Deposits	194,951			144,513
Net Decrease in Short-Term Federal Home Loan Bank Borrowings	(130,000		)	(159,500		)
Net Increase in Short-Term Borrowings	6,810			3,748
Finance Lease Payments	(5		)	(4		)
Federal Home Loan Bank Advances	40,000			—
Repayments of Federal Home Loan Bank Term Advances	(20,000		)	(10,000		)
Purchase of Treasury Stock	(1,507		)	(1,392		)
Stock Options Exercised, Net	343			535
Shares Issued Under the Employee Stock Purchase Plan	121			117
Shares Issued for Dividend Reinvestment Plans	442			453
Cash Dividends Paid	(3,904		)	(3,760		)
Net Cash Provided (Used) By Financing Activities	87,251			(25,290		)
Net Increase (Decrease) in Cash and Cash Equivalents	68,308			(23,010		)
Cash and Cash Equivalents at Beginning of Period	70,221			84,239
Cash and Cash Equivalents at End of Period	$	138,529		$	61,229
Supplemental Disclosures to Statements of Cash Flow Information:
Interest on Deposits and Borrowings	$	5,264		$	4,924
Income Taxes	344			311
Non-cash Investing and Financing Activity:
Transfer of Loans to Other Real Estate Owned and Repossessed Assets	371			728

See Notes to Unaudited Interim Consolidated Financial Statements.

# 7

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1.     ACCOUNTING POLICIES

In the opinion of the management of Arrow Financial Corporation (Arrow, the Company, we, or us), the accompanying unaudited interim consolidated financial statements contain all of the adjustments necessary to present fairly the financial position as of March 31, 2020, December 31, 2019 and March 31, 2019; the results of operations for the three-month periods ended March 31, 2020 and 2019; the consolidated statements of comprehensive income for the three-month periods ended March 31, 2020 and 2019; the changes in stockholders' equity for the three-month periods ended March 31, 2020 and 2019; and the cash flows for the three-month periods ended March 31, 2020 and 2019. All such adjustments are of a normal recurring nature.

Management’s Use of Estimates -The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (US GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of income and expenses during the reporting period.  Due to the uncertainty regarding the impact of the COVID-19 pandemic, management utilized estimates and assumptions in its evaluation of potential impairment of the Company's right-of-use lease assets, goodwill and intangible assets. Our most significant estimate is the allowance for loan losses. Other estimates include the evaluation of other-than-temporary impairment of investment securities, pension and other post-retirement liabilities and an analysis of a need for a valuation allowance for deferred tax assets. Actual results could differ from those estimates.

A material estimate that is particularly susceptible to significant change in the near term is the allowance for loan losses.  In connection with the determination of the allowance for loan losses, management obtains appraisals for properties.  The allowance for loan losses is management’s best estimate of probable loan losses incurred as of the balance sheet date.  While management uses available information to recognize losses on loans, future adjustments to the allowance for loan losses may be necessary based on changes in economic conditions.  

The unaudited interim consolidated financial statements should be read in conjunction with the audited annual consolidated financial statements of Arrow for the year ended December 31, 2019 included in Arrow's Annual Report on Form 10-K for the year ended December 31, 2019.

The following accounting standards have been adopted in the first three months of 2020:

In August 2018, the Financial Accounting Standards Board (FASB) issued ASU 2018-13 "Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement" as part of its disclosure framework, and pursuant to which FASB has eliminated, amended and added disclosure requirements for fair value measurements. For Arrow, the standard became effective, on a prospective basis, on January 1, 2020. The adoption of this change in fair value disclosure did not have a material impact on its financial position or the results of operations in the period subsequent to its adoption.

In August 2018, the FASB issued Accounting Standards Update (ASU) 2018-15 "Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract" which will require companies to defer potentially significant, specified implementation costs incurred in a cloud computing arrangement that are currently often expensed under US GAAP. For Arrow, the standard was adopted, on a prospective basis, on January 1, 2020. The adoption of this standard did not have a material impact on its financial position or the results of operations in the period subsequent to its adoption.

In October 2018, the FASB issued ASU No. 2018-17, Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities ("ASU 2018-17"). ASU 2018-17 provides that indirect interests held through related parties in common control arrangements should be considered on a proportional basis for determining whether fees paid to decision makers and service providers are variable interests. For Arrow, the standard was effective on January 1, 2020 and the adoption of this standard did not have a material impact on its financial position or the results of operations in the period subsequent to its adoption.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting ("ASU 2020-04"). ASU 2020-04 provides companies with optional guidance to ease the potential accounting burden associated with transitioning away from reference rates that are expected to be discontinued, such as LIBOR. Companies can apply the ASU immediately. However, the guidance will only be available for a limited time (generally through December 31, 2022), and provides optional relief for contract modifications, hedge accounting and Held-to-maturity debt securities. For Arrow, this standard was effective January 1, 2020 and can be applied prospectively beginning January 1, 2020 for contract modifications and hedging relationships. The one-time election to sell and/or transfer securities classified as Held-to-maturity may be made at any point after March 12, 2020. Arrow is evaluating the impact of this standard as it will provide relief for contracts currently tied to LIBOR and hedge accounting relationships.

# 8

Note 2.    INVESTMENT SECURITIES (In Thousands)

The following table is the schedule of Available-For-Sale Securities at March 31, 2020, December 31, 2019 and March 31, 2019:

Available-For-Sale Securities
	U.S. Government & Agency Obligations		State and Municipal Obligations		Mortgage- Backed Securities			Corporate and Other Debt Securities			Total Available- For-Sale Securities
March 31, 2020
Available-For-Sale Securities,   at Amortized Cost	$	5,002	$	723	$	365,333		$	1,000		$	372,058
Gross Unrealized Gains	179		—		7,484			—			7,663
Gross Unrealized Losses	—		—		(1,335		)	(200		)	(1,535		)
Available-For-Sale Securities,   at Fair Value	5,181		723		371,482			800			378,186
Available-For-Sale Securities,   Pledged as Collateral, at Fair Value											273,124
Maturities of Debt Securities,   at Amortized Cost:
Within One Year	$	—	$	26	$	14,201		$	—		$	14,227
From 1 - 5 Years	5,002		257		325,234			—			330,493
From 5 - 10 Years	—		—		25,898			1,000			26,898
Over 10 Years	—		440		—			—			440
Maturities of Debt Securities,   at Fair Value:
Within One Year	$	—	$	26	$	14,616		$	—		$	14,642
From 1 - 5 Years	5,181		257		331,422			—			336,860
From 5 - 10 Years	—		—		25,444			800			26,244
Over 10 Years	—		440		—			—			440
Securities in a Continuous   Loss Position, at Fair Value:
Less than 12 Months	$	—	$	—	$	18,846		$	—		$	18,846
12 Months or Longer	—		—		59,262			800			60,062
Total	$	—	$	—	$	78,108		$	800		$	78,908
Number of Securities in a   Continuous Loss Position	—		—		27			1			28
Unrealized Losses on   Securities in a Continuous   Loss Position:
Less than 12 Months	$	—	$	—	$	316		$	—		$	316
12 Months or Longer	—		—		1,019			200			1,219
Total	$	—	$	—	$	1,335		$	200		$	1,535
Disaggregated Details:
US Agency Obligations, at Amortized Cost	5,002
US Agency Obligations, at Fair Value	5,181
US Government Agency   Securities, at Amortized Cost					$	58,089
US Government Agency   Securities, at Fair Value					57,091
Government Sponsored Entity   Securities, at Amortized Cost					307,244
Government Sponsored Entity Securities, at Fair Value					314,391

# 9

Available-For-Sale Securities
	U.S. Government & Agency Obligations		State and Municipal Obligations		Mortgage- Backed Securities			Corporate and Other Debt Securities			Total Available- For-Sale Securities
December 31, 2019
Available-For-Sale Securities,   at Amortized Cost	$	5,002	$	764	$	349,944		$	1,000		$	356,710
Gross Unrealized Gains	52		—		1,852			—			1,904
Gross Unrealized Losses	—		—		(1,080		)	(200		)	(1,280		)
Available-For-Sale Securities,   at Fair Value	5,054		764		350,716			800			357,334
Available-For-Sale Securities,   Pledged as Collateral,   at Fair Value											164,426
Securities in a Continuous   Loss Position, at Fair Value:
Less than 12 Months	$	—	$	—	$	52,491		$	—		$	52,491
12 Months or Longer	—		—		97,164			800			97,964
Total	$	—	$	—	$	149,655		$	800		$	150,455
Number of Securities in a   Continuous Loss Position	—		—		54			1			55
Unrealized Losses on   Securities in a Continuous   Loss Position:
Less than 12 Months	$	—	$	—	$	317		$	—		$	317
12 Months or Longer	—		—		763			200			963
Total	$	—	$	—	$	1,080		$	200		$	1,280
Disaggregated Details:
US Agency Obligations, at Amortized Cost	5,002
US Agency Obligations, at Fair Value	5,054
US Government Agency   Securities, at Amortized Cost					$	61,102
US Government Agency   Securities, at Fair Value					60,616
Government Sponsored Entity   Securities, at Amortized Cost					288,842
Government Sponsored Entity Securities, at Fair Value					290,100

# 10

Available-For-Sale Securities
	U.S. Government & Agency Obligations			State and Municipal Obligations		Mortgage- Backed Securities			Corporate and Other Debt Securities			Total Available- For-Sale Securities
March 31, 2019
Available-For-Sale Securities,   at Amortized Cost	$	35,519		$	1,114	$	263,347		$	1,000		$	300,980
Gross Unrealized Gains	—			2		657			—			659
Gross Unrealized Losses	(136		)	—		(2,491		)	(200		)	(2,827		)
Available-For-Sale Securities,   at Fair Value	35,383			1,116		261,513			800			298,812
Available-For-Sale Securities,   Pledged as Collateral, at Fair Value												255,028
Securities in a Continuous   Loss Position, at Fair Value:
Less than 12 Months	$	—		$	—	$	53,131		$	—		$	53,131
12 Months or Longer	35,383			—		155,108			800			191,291
Total	$	35,383		$	—	$	208,239		$	800		$	244,422
Number of Securities in a   Continuous Loss Position	7			—		80			1			88
Unrealized Losses on Securities   in a Continuous Loss Position:
Less than 12 Months	$	—		$	—	$	258		$	—		$	258
12 Months or Longer	136			—		2,233			200			2,569
Total	$	136		$	—	$	2,491		$	200		$	2,827
Disaggregated Details:
US Agency Obligations, at Amortized Cost	35,519
US Agency Obligations, at Fair Value	35,383
US Government Agency   Securities, at Amortized Cost						$	70,358
US Government Agency   Securities, at Fair Value						70,034
Government Sponsored Entity   Securities, at Amortized Cost						192,989
Government Sponsored Entity Securities, at Fair Value						191,479

# 11

The following table is the schedule of Held-To-Maturity Securities at March 31, 2020, December 31, 2019 and March 31, 2019:

Held-To-Maturity Securities
	State and Municipal Obligations			Mortgage- Backed Securities		Total Held-To Maturity Securities
March 31, 2020
Held-To-Maturity Securities,   at Amortized Cost	$	204,148		$	34,372	$	238,520
Gross Unrealized Gains	3,104			1,329		4,433
Gross Unrealized Losses	(149		)	—		(149		)
Held-To-Maturity Securities,   at Fair Value	207,103			35,701		242,804
Held-To-Maturity Securities,   Pledged as Collateral, at Fair Value						231,539
Maturities of Debt Securities,   at Amortized Cost:
Within One Year	$	16,308		$	2,857	$	19,165
From 1 - 5 Years	115,665			31,515		147,180
From 5 - 10 Years	70,585			—		70,585
Over 10 Years	1,590			—		1,590
Maturities of Debt Securities,   at Fair Value:
Within One Year	$	16,329		$	2,964	$	19,293
From 1 - 5 Years	117,119			32,737		149,856
From 5 - 10 Years	72,031			—		72,031
Over 10 Years	1,624			—		1,624
Securities in a Continuous   Loss Position, at Fair Value:
Less than 12 Months	$	5,625		$	—	$	5,625
12 Months or Longer	1,867			—		1,867
Total	$	7,492		$	—	$	7,492
Number of Securities in a   Continuous Loss Position	16			—		16
Unrealized Losses on Securities    in a Continuous Loss Position:
Less than 12 Months	$	16		$	—	$	16
12 Months or Longer	133			—		133
Total	$	149		$	—	$	149
Disaggregated Details:
US Government Agency   Securities, at Amortized Cost				$	1,594
US Government Agency   Securities, at Fair Value				1,655
Government Sponsored Entity   Securities, at Amortized Cost				32,778
Government Sponsored Entity Securities, at Fair Value				34,046

# 12

Held-To-Maturity Securities
	State and Municipal Obligations			Mortgage- Backed Securities			Total Held-To Maturity Securities
December 31, 2019
Held-To-Maturity Securities,   at Amortized Cost	$	208,243		$	36,822		$	245,065
Gross Unrealized Gains	4,170			477			4,647
Gross Unrealized Losses	(94		)	—			(94		)
Held-To-Maturity Securities,   at Fair Value	212,319			37,299			249,618
Held-To-Maturity Securities,   Pledged as Collateral, at Fair Value							237,969
Securities in a Continuous   Loss Position, at Fair Value:
Less than 12 Months	$	1,438		$	—		$	1,438
12 Months or Longer	1,994			—			1,994
Total	$	3,432		$	—		$	3,432
Number of Securities in a   Continuous Loss Position	10			—			10
Unrealized Losses on   Securities in a Continuous   Loss Position:
Less than 12 Months	$	85		$	—		$	85
12 Months or Longer	9			—			9
Total	$	94		$	—		$	94
Disaggregated Details:
US Government Agency   Securities, at Amortized Cost				$	1,703
US Government Agency   Securities, at Fair Value				1,720
Government Sponsored Entity   Securities, at Amortized Cost				35,119
Government Sponsored Entity Securities, at Fair Value				35,579
March 31, 2019
Held-To-Maturity Securities,   at Amortized Cost	$	234,454		$	44,946		$	279,400
Gross Unrealized Gains	1,695			97			1,792
Gross Unrealized Losses	(573		)	(205		)	(778		)
Held-To-Maturity Securities,   at Fair Value	235,576			44,838			280,414
Held-To-Maturity Securities,   Pledged as Collateral, at Fair Value							265,465
Securities in a Continuous   Loss Position, at Fair Value:
Less than 12 Months	$	—		$	—		$	—
12 Months or Longer	71,450			26,021			97,471
Total	$	71,450		$	26,021		$	97,471
Number of Securities in a   Continuous Loss Position	193			29			222

# 13

Held-To-Maturity Securities
	State and Municipal Obligations		Mortgage- Backed Securities		Total Held-To Maturity Securities
Unrealized Losses on   Securities in a Continuous   Loss Position:
Less than 12 Months	$	—	$	—	$	—
12 Months or Longer	573		205		778
Total	$	573	$	205	$	778
March 31, 2019
Disaggregated Details:
US Government Agency   Securities, at Amortized Cost			$	2,069
US Government Agency   Securities, at Fair Value			2,012
Government Sponsored Entity   Securities, at Amortized Cost			42,877
Government Sponsored Entity Securities, at Fair Value			42,826

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

Securities in a continuous loss position, in the tables above for March 31, 2020, December 31, 2019 and March 31, 2019, do not reflect any deterioration of the credit worthiness of the issuing entities.

 U.S. government agency securities, including mortgage-backed securities, are all rated AAA by Moody's and 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.  Credit analysis is performed in-house based upon data that has been submitted by the issuers to the New York State Comptroller. That analysis shows no deterioration in the credit worthiness of the municipalities.  Subsequent to March 31, 2020, 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 there is no current intention to sell any of our temporarily impaired securities, and because it is not more likely than not that it would be required to sell the securities prior to recovery, the impairment is considered temporary.

Pledged securities, in the tables above, are primarily used to collateralize state and municipal deposits, as required under New York State law. A portion of the pledged securities are used to collateralize repurchase agreements and pooled deposits of our trust customers.

The following table is the schedule of Equity Securities at March 31, 2020, December 31, 2019 and March 31, 2019:

Equity Securities
	March 31, 2020	December 31, 2019	March 31, 2019
Equity Securities, at Fair Value	$1,689	$2,063	$1,850

The following is a summary of realized and unrealized gains and losses recognized in net income on equity securities during the three-month periods ended March 31, 2020 and 2019:

	Quarterly Period Ended:
	March 31, 2020			March 31, 2019
Net (Loss) Gain on Equity Securities	$	(374	)	$	76
Less: Net gain (loss) recognized during the reporting period on equity securities sold during the period	—			—
Unrealized net (loss) gain recognized during the reporting period on equity securities still held at the reporting date	$	(374	)	$	76

# 14

Note 3.    LOANS (In Thousands)

Loan Categories and Past Due Loans

The following table presents loan balances outstanding as of March 31, 2020, December 31, 2019 and March 31, 2019 and an analysis of the recorded investment in loans that are past due at these dates.  Generally, Arrow considers a loan past due 30 or more days when the borrower is two payments past due. Loans held-for-sale of $1,905, $215 and $201 as of March 31, 2020, December 31, 2019 and March 31, 2019, respectively, are included in the residential real estate balances for current loans.

Schedule of Past Due Loans by Loan Category
			Commercial
	Commercial		Real Estate		Consumer		Residential		Total
March 31, 2020
Loans Past Due 30-59 Days	$	173	$	461	$	5,636	$	1,630	$	7,900
Loans Past Due 60-89 Days	70		110		1,451		212		1,843
Loans Past Due 90 or more Days	8		911		549		1,525		2,993
Total Loans Past Due	251		1,482		7,636		3,367		12,736
Current Loans	146,849		524,648		817,073		912,887		2,401,457
Total Loans	$	147,100	$	526,130	$	824,709	$	916,254	$	2,414,193
Loans 90 or More Days Past Due   and Still Accruing Interest	$	5	$	238	$	93	$	101	$	437
Nonaccrual Loans	63		1,445		715		2,720		4,943
December 31, 2019
Loans Past Due 30-59 Days	$	150	$	—	$	5,670	$	152	$	5,972
Loans Past Due 60-89 Days	42		266		2,700		2,027		5,035
Loans Past Due 90 or more Days	21		326		445		1,807		2,599
Total Loans Past Due	213		592		8,815		3,986		13,606
Current Loans	150,447		509,949		802,383		909,735		2,372,514
Total Loans	$	150,660	$	510,541	$	811,198	$	913,721	$	2,386,120
Loans 90 or More Days Past Due   and Still Accruing Interest	$	—	$	—	$	—	$	253	$	253
Nonaccrual Loans	81		326		663		2,935		4,005
March 31, 2019
Loans Past Due 30-59 Days	$	168	$	208	$	4,758	$	1,345	$	6,479
Loans Past Due 60-89 Days	—		—		1,387		207		1,594
Loans Past Due 90 or more Days	17		108		369		1,610		2,104
Total Loans Past Due	185		316		6,514		3,162		10,177
Current Loans	133,091		493,071		740,285		858,584		2,225,031
Total Loans	$	133,276	$	493,387	$	746,799	$	861,746	$	2,235,208
Loans 90 or More Days Past Due   and Still Accruing Interest	$	—	$	—	$	—	$	64	$	64
Nonaccrual Loans	415		248		588		3,892		5,143

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. Generally, these loans carry a higher risk than commercial real estate loans, due primarily 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 to support the borrowing, as permitted by applicable law.

# 15

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 often made to finance the purchases of real property which generally consists of real estate with completed structures. These commercial real estate loans are typically 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. Many projects will ultimately be used by the borrowers' businesses, while others are developed for resale. These real estate loans are also typically secured by first liens on the real estate, which may include apartments, commercial structures, housing businesses, 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 - 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 indirect consumer 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. The Company also 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.

Residential - Residential real estate loans consist primarily of loans secured by first or second mortgages on primary residences. The Company originates fixed-rate and adjustable-rate one-to-four-family residential real estate loans for construction, the purchase of real estate 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 80% 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 variable rate home equity lines of credit, to consumers to finance home improvements, debt consolidation, education and other uses.  The Company's 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			Total
Roll-forward of the Allowance for Loan Losses for the Quarterly Periods:
December 31, 2019	$	1,386		$	5,830		$	9,408		$	4,563		$	21,187
Charge-offs	(14		)	—			(467		)	—			(481		)
Recoveries	—			—			159			—			159
Provision	267			1,235			904			366			2,772
March 31, 2020	$	1,639		$	7,065		$	10,004		$	4,929		$	23,637
December 31, 2018	$	1,218		$	5,644		$	8,882		$	4,452		$	20,196
Charge-offs	(1		)	(29		)	(418		)	(14		)	(462		)
Recoveries	—			—			167			—			167
Provision	33			(26		)	778			(313		)	472
March 31, 2019	$	1,250		$	5,589		$	9,409		$	4,125		$	20,373

# 16

Allowance for Loan Losses
			Commercial
	Commercial		Real Estate		Consumer		Residential		Total
March 31, 2020
Allowance for loan losses - Loans Individually Evaluated for Impairment	$	4	$	—	$	—	$	37	$	41
Allowance for loan losses - Loans Collectively Evaluated for Impairment	1,635		7,065		10,004		4,892		23,596
Ending Loan Balance - Individually Evaluated for Impairment	34		1,137		111		953		2,235
Ending Loan Balance - Collectively Evaluated for Impairment	$	147,066	$	524,993	$	824,598	$	915,301	$	2,411,958
December 31, 2019
Allowance for loan losses - Loans Individually Evaluated for Impairment	$	5	$	—	$	—	$	42	$	47
Allowance for creditlosses - Loans Collectively Evaluated for Impairment	1,381		5,830		9,408		4,521		21,140
Ending Loan Balance - Individually Evaluated for Impairment	35		—		107		959		1,101
Ending Loan Balance - Collectively Evaluated for Impairment	$	150,625	$	510,541	$	811,091	$	912,762	$	2,385,019
March 31, 2019
Allowance for loan losses - Loans Individually Evaluated for Impairment	$	—	$	—	$	—	$	—	$	—
Allowance for credit losses - Loans Collectively Evaluated for Impairment	1,250		5,589		9,409		4,125		20,373
Ending Loan Balance - Individually Evaluated for Impairment	40		387		101		2,417		2,945
Ending Loan Balance - Collectively Evaluated for Impairment	$	133,236	$	493,000	$	746,698	$	859,329	$	2,232,263

Through the provision for loan losses, an allowance for loan losses is maintained that reflects the best estimate of the incurred 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.

Our 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, our independent internal loan review department performs periodic reviews of the credit quality indicators on individual loans in the commercial loan portfolio.

The Company uses a two-step process to determine the provision for loan losses and the amount of the allowance for loan losses. An evaluation of impaired loans is performed on a quarterly basis. Impaired loans are generally nonaccrual loans over $250 thousand and all troubled debt restructured loans. Specific reserves on individually identified impaired loans that are not collateral dependent are measured based on the present value of expected future cash flows discounted at the original effective interest rate of each loan. For loans that are collateral dependent, impairment is measured based on the fair value of the collateral less estimated selling costs, and such impaired amounts are generally charged off. In general, Arrow's impaired loans are collateral dependent impaired loans that have limited exposure or require limited specific reserves because of the amount of collateral support with respect to these loans. Interest payments on impaired loans are typically applied to principal unless collectability of the principal amount is reasonably assured. In these cases, interest is recognized on a cash basis.

# 17

The remainder of the portfolio is evaluated on a pooled basis, as described below. For each homogeneous loan pool, a total loss factor is estimated based on the historical net loss rates adjusted for applicable qualitative factors. The total loss factors assigned to each loan category are updated on a quarterly basis. For the commercial, commercial construction and commercial real estate categories, the loan categories are further segregated by credit risk profile (pools of loans graded pass, special mention and accruing substandard). Additional description of the credit risk classifications is detailed in the Credit Quality Indicators section of this note.

The historical net loss rate is determined for each loan category using a trailing three-year net charge-off average. 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, historical net loss factors are considered and adjusted for qualitative factors that impact the incurred 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

# 18

Loan Credit Quality Indicators

The following table presents the credit quality indicators by loan category at March 31, 2020, December 31, 2019 and March 31, 2019:

Loan Credit Quality Indicators
			Commercial
	Commercial		Real Estate		Consumer		Residential		Total
March 31, 2020
Credit Risk Profile by Creditworthiness Category:
Satisfactory	$	140,218	$	497,243					$	637,461
Special Mention	28		255						283
Substandard	6,854		28,632						35,486
Doubtful	—		—						—
Credit Risk Profile Based on Payment Activity:
Performing					$	823,901	$	913,433	$	1,737,334
Nonperforming					808		2,821		3,629
December 31, 2019
Credit Risk Profile by Creditworthiness Category:
Satisfactory	$	144,283	$	484,267					$	628,550
Special Mention	32		263						295
Substandard	6,345		26,011						32,356
Doubtful	—		—						—
Credit Risk Profile Based on Payment Activity:
Performing					$	810,535	$	910,533	$	1,721,068
Nonperforming					663		3,188		3,851
March 31, 2019
Credit Risk Profile by Creditworthiness Category:
Satisfactory	$	125,918	$	465,216					$	591,134
Special Mention	133		2,268						2,401
Substandard	7,225		25,903						33,128
Doubtful	—		—						—
Credit Risk Profile Based on Payment Activity:
Performing					$	746,211	$	857,790	$	1,604,001
Nonperforming					588		3,956		4,544

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.

For the allowance calculation, an internally developed system of five credit quality indicators is used 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 credit quality indicator 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 Company will sustain some loss if the deficiencies are not corrected.  “Substandard”

# 19

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 (e.g. 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 with collateral of such little value that their continuance as bankable assets 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.  

Commercial loans are generally evaluated on an annual basis depending on the size and complexity of the loan relationship, unless the credit related 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 in assessing the level of incurred risk of loss in our commercial related loan portfolios.

# 20

Impaired Loans

The following table presents information on impaired loans as of March 31, 2020, December 31, 2019 and March 31, 2019 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
March 31, 2020
Recorded Investment:
With No Related Allowance	$	—	$	1,137	$	112	$	697	$	1,946
With a Related Allowance	33		—		—		256		289
Unpaid Principal Balance:
With No Related Allowance	—		1,137		111		697		1,945
With a Related Allowance	34		—		—		256		290
December 31, 2019
Recorded Investment:
With No Related Allowance	$	—	$	—	$	108	$	699	$	807
With a Related Allowance	34		—		—		260		294
Unpaid Principal Balance:
With No Related Allowance	—		—		107		699		806
With a Related Allowance	35		—		—		260		295
March 31, 2019
Recorded Investment:
With No Related Allowance	$	38	$	389	$	101	$	2,417	$	2,945
With a Related Allowance	—		—		—		—		—
Unpaid Principal Balance:
With No Related Allowance	424		2		101		2,416		$	2,943
With a Related Allowance	—		—		—		—		—
For the Quarter Ended:
March 31, 2020
Average Recorded Balance:
With No Related Allowance	$	—	$	569	$	110	$	698	$	1,377
With a Related Allowance	34		—		—		258		292
Interest Income Recognized:
With No Related Allowance	—		10		—		—		10
With a Related Allowance	—		—		—		—		—
Cash Basis Income:
With No Related Allowance	—		—		—		—		—
With a Related Allowance	—		—		—		—		—
March 31, 2019
Average Recorded Balance:
With No Related Allowance	$	234	$	591	$	101	$	2,011	$	2,937
With a Related Allowance	—		—		—		147		147
Interest Income Recognized:
With No Related Allowance	—		—		—		—		—
With a Related Allowance	—		—		—		—		—
Cash Basis Income:
With No Related Allowance	—		—		—		—		—
With a Related Allowance	—		—		—		—		—

At March 31, 2020, December 31, 2019 and March 31, 2019, 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 interest income was recognized on a cash basis.

# 21

Loans Modified in Trouble Debt Restructurings

The following table presents information on loans modified in trouble debt restructurings during the periods indicated.

Loans Modified in Trouble Debt Restructurings During the Period
			Commercial
	Commercial		Real Estate		Consumer		Residential		Total
For the Quarter Ended:
March 31, 2020
Number of Loans	—		—		1		—		1
Pre-Modification Outstanding Recorded Investment	$	—	$	—	$	16	$	—	$	16
Post-Modification Outstanding Recorded Investment	—		—		16		—		16
Subsequent Default, Number of Contracts	—		—		—		—		—
Subsequent Default, Recorded Investment	—		—		—		—		—
March 31, 2019
Number of Loans	—		—		1		—		1
Pre-Modification Outstanding Recorded Investment	$	—	$	—	$	13	$	—	$	13
Post-Modification Outstanding Recorded Investment	—		—		13		—		13
Subsequent Default, Number of Contracts	—		—		—		—		—
Subsequent Default, Recorded Investment	—		—		—		—		—

In general, prior to the COVID-19 pandemic, loans requiring modification are restructured to accommodate the projected cash-flows of the borrower. Such modifications may involve a reduction of the interest rate, a significant deferral of payments or forgiveness of a portion of the outstanding principal balance. As indicated in the table above, no loans modified during the preceding twelve months subsequently defaulted as of March 31, 2020. In accordance with the Coronavirus Aid, Relief, and Economic Security (CARES) Act, if a short-term loan modification (e.g. six months) is made for a borrower as the result of the COVID-19 pandemic, and who was current on contractual payments as of December 31, 2019, this modification is not considered a troubled debt restructuring (TDR).

Note 4.    COMMITMENTS AND CONTINGENCIES (In Thousands)

The following table presents the notional amount and fair value of Arrow's off-balance sheet commitments to extend credit and commitments under standby letters of credit as of March 31, 2020, December 31, 2019 and March 31, 2019:

Commitments to Extend Credit and Letters of Credit
	March 31, 2020		December 31, 2019		March 31, 2019
Notional Amount:
Commitments to Extend Credit	$	376,519	$	349,718	$	310,749
Standby Letters of Credit	3,301		3,129		4,431
Fair Value:
Commitments to Extend Credit	$	—	$	—	$	—
Standby Letters of Credit	29		31		20

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.  Those 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.

# 22

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 not expected to be fully 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 lines of credit 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 does not issue any guarantees that would require liability-recognition or disclosure, other than its standby letters of credit.

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 commercial 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 March 31, 2020, December 31, 2019 and March 31, 2019 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 will 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 range from 1% to 3% of the notional amount.  Fees are collected upfront and amortized over the life of the commitment. The carrying amount and fair value of Arrow's standby letters of credit at March 31, 2020, December 31, 2019 and March 31, 2019, were insignificant.  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.

In the normal course of business, Arrow and its subsidiary banks become involved in a variety of routine legal proceedings.  At present, there are no legal proceedings pending or threatened, which in the opinion of management and counsel, would result in a material loss to Arrow.

# 23

Note 5.    COMPREHENSIVE INCOME (In Thousands)

The following table presents the components of other comprehensive income for the three-month periods ended March 31, 2020 and 2019:

Schedule of Comprehensive Income
	Three Months Ended March 31,
				Tax
	Before-Tax			(Expense)			Net-of-Tax
	Amount			Benefit			Amount
2020
Net Unrealized Securities Holding Gains on Securities Available-for-Sale Arising During the Period	5,504			$	(1,406	)	4,098
Net Unrealized Losses on Cash Flow Swap	(294		)	75			(219		)
Amortization of Net Retirement Plan Actuarial Loss	36			(9		)	27
Amortization of Net Retirement Plan Prior Service Cost	54			(15		)	39
Other Comprehensive Income	$	5,300		$	(1,355	)	$	3,945
2019
Net Unrealized Securities Holding Gains on Securities Available-for-Sale Arising During the Period	2,788			$	(708	)	2,080
Amortization of Net Retirement Plan Actuarial Loss	163			(42		)	121
Amortization of Net Retirement Plan Prior Service Cost	56			(14		)	42
Other Comprehensive Income	$	3,007		$	(764	)	$	2,243

# 24

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

Changes in Accumulated Other Comprehensive Income (Loss) by Component (1)
	Unrealized Gains and Losses on Available-for-Sale Securities			Unrealized Loss on Cash Flow Swap			Defined Benefit Plan Items						Total
							Net Actuarial Gain (Loss)			Net Prior Service (Cost) Credit
For the Quarter-To-Date periods ended:
December 31, 2019	$	465		$	—		$	(5,847	)	$	(975	)	$	(6,357	)
Other comprehensive income or loss before reclassifications	4,098			(219		)	—			—			3,879
Amounts reclassified from accumulated other comprehensive income	—			—			27			39			66
Net current-period other comprehensive income	4,098			(219		)	27			39			3,945
March 31, 2020	$	4,563		$	(219	)	$	(5,820	)	$	(936	)	$	(2,412	)
December 31, 2018	$	(3,697	)				$	(8,971	)	$	(1,142	)	$	(13,810	)
Other comprehensive income or loss before reclassifications	2,080						—			—			2,080
Amounts reclassified from accumulated other comprehensive income	—						121			42			163
Net current-period other comprehensive income	2,080						121			42			2,243
March 31, 2019	$	(1,617	)				$	(8,850	)	$	(1,100	)	$	(11,567	)

(1) All amounts are net of tax.

# 25

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

Reclassifications Out of Accumulated Other Comprehensive Income
	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:
March 31, 2020
Amortization of defined benefit pension items:
Prior-service costs	$	(54	)	(1)	Salaries and Employee Benefits
Actuarial loss	(36		)	(1)	Salaries and Employee Benefits
	(90		)		Total before Tax
	24				Provision for Income Taxes
	$	(66	)		Net of Tax
Total reclassifications for the period	$	(66	)		Net of Tax
March 31, 2019
Amortization of defined benefit pension items:
Prior-service costs	$	(56	)	(1)	Salaries and Employee Benefits
Actuarial loss	(163		)	(1)	Salaries and Employee Benefits
	(219		)		Total before Tax
	56				Provision for Income Taxes
	$	(163	)		Net of Tax
Total reclassifications for the period	$	(163	)		Net of Tax

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

# 26

Note 6.    STOCK-BASED COMPENSATION (Dollars In Thousands, Except Share and Per Share Amounts)

Arrow has established three stock-based compensation plans: a Long Term Incentive Plan, an Employee Stock Purchase Plan (ESPP) and an Employee Stock Ownership Plan (ESOP). All share and per share data have been adjusted for the September 27, 20193% stock dividend.

Long Term Incentive Plan

The Long Term Incentive Plan provides for the grant of incentive stock options, non-qualified stock options, restricted stock, restricted stock units, performance units and performance shares. The Compensation Committee of the Board of Directors administers the Long Term Incentive Plan.

Stock Options - Options may be granted at a price no less than the greater of the par value or fair market value of such shares on the date on which such option is granted, and generally expire ten years from the date of grant.  The options usually vest over a four-year period.

The following table summarizes information about stock option activity for the year to date period ended March 31, 2020.

	Shares			Weighted Average Exercise Price
Outstanding at January 1, 2020	241,242			$	27.58
Granted	50,800			35.28
Exercised	(14,282		)	24.05
Forfeited	(2,752		)	29.65
Outstanding at March 31, 2020	275,008			29.17
Vested at Period-End	155,195			26.23
Expected to Vest	119,813			32.97
Stock Options Granted
Weighted Average Grant Date Information:
Fair Value of Options Granted	$	4.99
Fair Value Assumptions:
Dividend Yield	2.90		%
Expected Volatility	20.25		%
Risk Free Interest Rate	1.53		%
Expected Lives (in years)	6.68

The following table presents information on the amounts expensed related to stock options for the periods ended March 31, 2020 and 2019:

	For the Three Months Ended March 31,
	2020		2019
Amount expensed	$	76	$	79

Restricted Stock Units - The Company grants restricted stock units which gives the recipient the right to receive shares of Company stock upon vesting. The fair value of each restricted stock unit is the market value of Company stock on the date of grant. 100% of the restricted stock unit awards vest three years from the grant date. Once vested, the restricted stock units become vested units and are no longer forfeitable. Vested units settle upon retirement of the recipient. Unvested restricted stock unit awards will generally be forfeited if the recipient ceases to be employed by the Company, with limited exceptions.

# 27

The following table summarizes information about restricted stock unit activity for the periods ended March 31, 2020 and 2019.

	Restricted Stock Units	Weighted Average Grant Date Fair Value
Non-vested at January 1, 2020	7,496	$	31.18
Granted	3,827	35.28
Non-vested at March 31, 2020	11,323	32.57
Non-vested at January 1, 2019	3,478	31.62
Granted	4,018	30.79
Non-vested at March 31, 2019	7,496	31.18

The following table presents information on the amounts expensed related to restricted stock units for the periods ended March 31, 2020 and 2019:

	For the Three Months Ended March 31,
	2020		2019
Amount expensed	$	27	$	16

Employee Stock Purchase Plan

Arrow sponsors an ESPP under which employees may purchase Arrow's common stock at a 5% discount below market price. Under current accounting guidance, a stock purchase plan with a discount of 5% or less is not considered a compensatory plan.

Employee Stock Ownership Plan

Arrow maintains an ESOP, pursuant to which substantially all employees of Arrow and its subsidiaries are eligible to participate upon satisfaction of applicable service requirements.  The ESOP borrowed funds from one of Arrow’s subsidiary banks to purchase outstanding shares of Arrow’s common stock.  The notes, which were fully repaid as of December 31, 2019, required annual payments of principal and interest through 2019.  As the debt was repaid, shares were released from collateral based on the proportion of debt paid to total debt outstanding for the year and allocated to active employees.  In addition, the Company makes additional cash contributions to the Plan each year.

Shares pledged as collateral were reported as unallocated ESOP shares in stockholders' equity. As shares were released from collateral, Arrow reported compensation expense equal to the current average market price of the shares, and the shares became outstanding for earnings per share computations.

# 28

Note 7.    RETIREMENT BENEFIT PLANS (Dollars in Thousands)

Arrow sponsors qualified and non-qualified defined benefit pension plans and other postretirement benefit plans for its employees. Arrow maintains a non-contributory pension plan, which covers substantially all employees.  Effective December 1, 2002, all active participants in the qualified defined benefit pension plan were given a one-time irrevocable election to continue participating in the traditional plan design, for which benefits were based on years of service and the participant’s final compensation (as defined), or to begin participating in the new cash balance plan design.  All employees who participate in the plan after December 1, 2002 automatically participate in the cash balance plan design.  The interest credits under the cash balance plan are based on the 30-year U.S. Treasury rate in effect for November of the prior year with a minimum interest credit of 3%.  The service credits under the cash balance plan are equal to 6.0% of eligible salaries for employees who become participants on or after January 1, 2003.  For employees in the plan prior to January 1, 2003, the service credits are scaled based on the age of the participant, and range from 6.0% to 12.0%.  The funding policy is to contribute up to the maximum amount that can be deducted for federal income tax purposes and to make all payments required under The Employee Retirement Income Security Act (ERISA).  Arrow also maintains a supplemental non-qualified unfunded retirement plan to provide eligible employees of Arrow and its subsidiaries with benefits in excess of qualified plan limits imposed by federal tax law.

Arrow has multiple non-pension postretirement benefit plans.  The health care, dental and life insurance plans are contributory, with participants’ contributions adjusted annually.  Arrow’s policy is to fund the cost of postretirement benefits based on the current cost of the underlying policies.  However, the health care plan provision for automatic increases of Company contributions each year is based on the increase in inflation and is limited to a maximum of 5%.  

As of December 31, 2019, Arrow updated its mortality assumption to the Pri-2012 mortality tables for employees, healthy annuitants and contingent survivors, adjusted for mortality improvements with the Scale MP-2019 mortality improvement scale on a generational basis to reflect newly published mortality tables. The Pension Plan uses the sex-distinct amount-weighted tables, the Select Executive Retirement Plan uses the sex-distinct white collar amount-weighted tables, and the Postretirement Benefit Plan uses the sex-distinct headcount-weighted tables. The change in mortality tables resulted in a decrease in liabilities for the Employee's Pension Plan, the Select Executive Retirement Plan and the Postretirement Benefit Plan.

The mortality table used in determining the present value of a lump sum payment/annuitizing cash balance accounts was changed to the applicable mortality table for the determination of present values under Internal Revenue Code (IRC) Section 417(e)(3)(B). This table is currently a 50/50 blend of male and female rates from the 2020 sex distinct optional combined mortality tables, as prescribed under IRC Section 430. The change in mortality table was made to reflect the continued improvement in mortality rates and resulted in an increase in liabilities for the Employee's Pension Plan and the Select Executive Retirement Plan.

The interest rates used in determining the present value of a lump sum payment/annuitizing cash balance accounts were changed to the segment rates in effect for the January 1, 2020 plan year (2.04%, 3.09%, 3.68%) as of December 31, 2019. This change resulted in a decrease in liability for the Employees' Pension Plan and the Select Executive Retirement Plan.

The following tables provide the components of net periodic benefit costs for the three-month periods ended March 31, 2020 and 2019.

	Employees'			Select Executive		Postretirement
	Pension			Retirement		Benefit
	Plan			Plan		Plans
Net Periodic Benefit Cost
For the Three Months Ended March 31, 2020
Service Cost 1	$	430		$	103	$	33
Interest Cost 2	417			54		78
Expected Return on Plan Assets 2	(904		)	—		—
Amortization of Prior Service Cost 2	16			11		27
Amortization of Net Loss 2	1			33		2
Net Periodic Cost	$	(40	)	$	201	$	140
Plan Contributions During the Period	$	—		$	117	$	78
For the Three Months Ended March 31, 2019:
Service Cost 1	$	399		$	97	$	30
Interest Cost 2	397			52		89
Expected Return on Plan Assets 2	(770		)	—		—
Amortization of Prior Service Cost 2	17			14		25
Amortization of Net Loss 2	153			27		(17		)
Net Periodic (Benefit) Cost	$	196		$	190	$	127
Plan Contributions During the Period	$	—		$	116	$	37

Footnotes:

1. Included in Salaries and Employee Benefits on the Consolidated Statements of Income

2. Included in Other Operating Expense on the Consolidated Statements of Income

A contribution to the qualified pension plan in 2020 was not required, and currently, additional contributions in 2020 are not expected. Arrow makes contributions to its other post-retirement benefit plans in an amount equal to benefit payments for the year.

# 29

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 March 31, 2020 and 2019.  All share and per share amounts have been adjusted for the September 27, 2019, 3% stock dividend.

Earnings Per Share
	Three Months Ended
	March 31, 2020		March 31, 2019
Earnings Per Share - Basic:
Net Income	$	8,127	$	8,734
Weighted Average Shares - Basic	14,996		14,903
Earnings Per Share - Basic	$	0.54	$	0.59
Earnings Per Share - Diluted:
Net Income	$	8,127	$	8,734
Weighted Average Shares - Basic	14,996		14,903
Dilutive Average Shares Attributable to Stock Options	30		53
Weighted Average Shares - Diluted	15,026		14,956
Earnings Per Share - Diluted	$	0.54	$	0.58

# 30

Note 9.    FAIR VALUES (Dollars In Thousands)

FASB ASC Subtopic 820-10 defines fair value, establishes a framework for measuring fair value in GAAP and requires certain disclosures about fair value measurements. There are no 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 March 31, 2020, December 31, 2019 and March 31, 2019 were securities available-for-sale, equity securities and derivatives. 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)
Fair Value of Assets and Liabilities Measured on a Recurring Basis:
March 31, 2020
Assets:
Securities Available-for Sale:
U.S. Government & Agency Obligations	$	5,181	$	—	$	5,181	$	—
State and Municipal Obligations	723		—		723		—
Mortgage-Backed Securities	371,482		—		371,482		—
Corporate and Other Debt Securities	800		—		800		—
Total Securities Available-for-Sale	378,186		—		378,186		—
Equity Securities	1,689		—		1,689		—
Total Securities Measured on a Recurring Basis	379,875		—		379,875		—
Derivatives, included in other assets	5,191		—		5,191		—
Total Measured on a Recurring Basis	$	385,066	$	—	$	385,066	$	—
Liabilities:
Derivatives, included in other liabilities	5,191		—		5,191		—
Total Measured on a Recurring Basis	$	5,191	$	—	$	5,191	$	—
December 31, 2019
Assets:
Securities Available-for Sale:
U.S. Government & Agency Obligations	$	5,054	$	—	$	5,054	$	—
State and Municipal Obligations	764		—		764		—
Mortgage-Backed Securities	350,716		—		350,716		—
Corporate and Other Debt Securities	800		—		800		—
Total Securities Available-for-Sale	357,334				357,334
Equity Securities	2,063		—		2,063		—
Total Securities Measured on a Recurring Basis	359,397		—		359,397		—

# 31

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)
Derivatives, included in other liabilities	69		—		69		—
Total Measured on a Recurring Basis	$	359,466	$	—	$	359,466	$	—
Liabilities:
Derivatives, included in other liabilities	$	69	$	—	$	69	$	—
Total Measured on a Recurring Basis	$	69	$	—	$	69	$	—
March 31, 2019
Assets:
Securities Available-for Sale:
U.S. Government & Agency Obligations	$	35,383	$	—	$	35,383	$	—
State and Municipal Obligations	1,116		—		1,116		—
Mortgage-Backed Securities	261,513		—		261,513		—
Corporate and Other Debt Securities	800		—		800		—
Total Securities Available-for-Sale	298,812				298,812
Equity Securities	1,850		—		1,850		—
Total Securities Measured on a Recurring Basis	$	300,662	$	—	$	300,662	$	—

	Fair Value		Quoted Prices In Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Gains (Losses) Recognized in Earnings
Fair Value of Assets and Liabilities Measured on a Nonrecurring Basis:
March 31, 2020
Collateral Dependent Impaired Loans	$	582	$	—	$	—	$	582
Other Real Estate Owned and Repossessed Assets, Net	942		—		—		942		—
December 31, 2019
Collateral Dependent Impaired Loans	$	285	$	—	$	—	$	285
Other Real Estate Owned and Repossessed Assets, Net	1,261		—		—		1,261		(186	)
March 31, 2019
Collateral Dependent Impaired Loans	$	684	$	—	$	—	$	684
Other Real Estate Owned and Repossessed Assets, Net	1,445		—		—		1,445		(101	)

The fair value of financial instruments is determined 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;

# 32

• 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;

• 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).

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 services use a variety of techniques to arrive at fair value including market maker bids, quotes and pricing models.  Inputs to the pricing models include recent trades, benchmark interest rates, spreads and actual and projected cash flows.  The fair value of Level 2 derivatives is determined using inputs that are observable in the market place obtained from third parties including yield curves, publicly available volatilities, and floating indexes.

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

The fair value of collateral dependent impaired loans and other real estate owned was based on third-party appraisals less estimated cost to sell. The appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses. 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 at least annually, with no impairment recognized for these assets at March 31, 2020, December 31, 2019 and March 31, 2019.

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

The fair value for securities held-to-maturity is determined 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.

ASU 2016-01 "Recognition and Measurement of Financial Assets and Financial Liabilities" requires that the fair value for loans must be disclosed using the "exit price" notion which is a reasonable estimate of what another party might pay in an orderly transaction. Fair values for loans are calculated for portfolios of loans with similar financial characteristics.  Loans are segregated by type such as commercial, commercial real estate, residential mortgage, indirect auto 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 determining the estimated future cash flow, which is the contractual cash flow adjusted for estimated prepayments. The discount rate is determined by starting with current market yields, and first adjusting for a liquidity premium. This premium is separately determined for each loan type. Then a credit loss component is determined utilizing the credit loss assumptions used in the allowance for loan and lease loss model. Finally, a discount spread is applied separately for consumer loans vs. commercial loans based on market information and utilization of the Swap Curve.  

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 calculated by the FHLBNY.

The carrying amount of FHLBNY and FRB stock approximates fair value. If the stock was redeemed, the Company will receive an amount equal to the par value of the stock.

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.

# 33

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 Value		Fair Value		Level 1		Level 2		Level 3
March 31, 2020
Cash and Cash Equivalents	$	138,529	$	138,529	$	138,529	$	—	$	—
Securities Available-for-Sale	378,186		378,186		—		378,186		—
Securities Held-to-Maturity	238,520		242,804		—		242,804		—
Equity Securities	1,689		1,689		—		1,689		—
Federal Home Loan Bank and Federal   Reserve Bank Stock	5,379		5,379		—		5,379		—
Net Loans	2,390,556		2,368,033		—		—		2,368,033
Accrued Interest Receivable	7,856		7,856		—		7,856		—
Derivatives, included in other assets	5,191		5,191				5,191
Deposits	2,811,005		2,811,668		—		2,811,668		—
Federal Funds Purchased and Securities   Sold Under Agreements to Repurchase	57,909		57,909		—		57,909		—
Federal Home Loan Bank Term Advances	50,000		51,194		—		51,194		—
Junior Subordinated Obligations Issued   to Unconsolidated Subsidiary Trusts	20,000		20,000		—		20,000		—
Accrued Interest Payable	1,392		1,392		—		1,392		—
Derivatives, included in other liabilities	5,191		5,191		—		5,191		—

# 34

Schedule of Fair Values by Balance Sheet Grouping
					Fair Value Hierarchy
	Carrying Value		Fair Value		Level 1		Level 2		Level 3
December 31, 2019
Cash and Cash Equivalents	$	70,221	$	70,221	$	70,221	$	—	$	—
Securities Available-for-Sale	357,334		357,334		—		357,334		—
Securities Held-to-Maturity	245,065		249,618		—		249,618		—
Equity Securities	2,063		2,063		—		2,063
Federal Home Loan Bank and Federal   Reserve Bank Stock	10,317		10,317		—		10,317		—
Net Loans	2,364,933		2,332,797		—		—		2,332,797
Accrued Interest Receivable	7,377		7,377		—		7,377		—
Derivatives, included in other assets	69		69		—		69		—
Deposits	2,616,054		2,614,170		—		2,614,170		—
Federal Funds Purchased and Securities   Sold Under Agreements to Repurchase	51,099		51,099		—		51,099		—
Federal Home Loan Bank Overnight Advances	130,000		130,000		—		130,000		—
Federal Home Loan Bank Term Advances	30,000		29,993		—		29,993		—
Junior Subordinated Obligations Issued   to Unconsolidated Subsidiary Trusts	20,000		20,000		—		20,000		—
Accrued Interest Payable	1,436		1,436		—		1,436		—
Derivatives, included in other liabilities	69		69		—		69		—
March 31, 2019
Cash and Cash Equivalents	$	61,229	$	61,229	$	61,229	$	—	$	—
Securities Available-for-Sale	298,812		298,812		—		298,812		—
Securities Held-to-Maturity	279,400		280,414		—		280,414		—
Equity Securities	1,850		1,850		—		1,850
Federal Home Loan Bank and Federal   Reserve Bank Stock	7,878		7,878		—		7,878		—
Net Loans	2,214,835		2,164,298		—		—		2,164,298
Accrued Interest Receivable	8,180		8,180		—		8,180		—
Deposits	2,490,097		2,484,479		—		2,484,479		—
Federal Funds Purchased and Securities   Sold Under Agreements to Repurchase	58,407		58,407		—		58,407		—
Federal Home Loan Bank Overnight Advances	74,500		74,500		—		74,500		—
Federal Home Loan Bank Term Advances	35,000		34,805		—		34,805		—
Junior Subordinated Obligations Issued   to Unconsolidated Subsidiary Trusts	20,000		20,000		—		20,000		—
Accrued Interest Payable	737		737		—		737		—

# 35

Note 10.    LEASES (Dollars In Thousands)

The Company is a lessee in its leases, which are mainly for financial services locations in addition to leases for corporate vehicles. These leases generally require the Company to pay third-party expenses on behalf of the Lessor, which are referred to as variable payments. Under some leases, the Company pays the variable payments to the lessor, and in other leases, the Company pays the variable payments directly to the applicable third party. None of the Company's current leases include any residual value guarantees or any subleases, and there are no significant rights and obligations of the Company for leases that have not commenced as of the reporting date.

Arrow leases five of its branch offices, at market rates, from Stewart’s Shops Corp.  Mr. Gary C. Dake, President of Stewart’s Shops Corp., serves as a director on the board of directors of each of Arrow and Saratoga National Bank and Trust Company.

The following includes quantitative data related to the Company's leases as of and for the three months ended March 31, 2020 and March 31, 2019:

		Three Months Ended
Finance Lease Amounts:	Classification	March 31, 2020			March 31, 2019
Right-of-use Assets	Premises and Equipment, Net	$	5,124		$	2,922
Lease Liabilities	Finance Leases	5,249			2,946
Operating Lease Amounts:
Right-of-use Assets	Other Assets	$	5,529		$	5,587
Lease Liabilities	Other Liabilities	5,602			5,639
Other Information:
Cash Paid For Amounts Included In The Measurement Of Lease Liabilities:
Operating Outgoing Cash Flows From Finance Leases		$	50		$	15
Operating Outgoing Cash Flows From Operating Leases		158			173
Financing Outgoing Cash Flows From Finance Leases		5			4
Right-of-use Assets Obtained In Exchange For New Finance Lease Liabilities		—			2,939
Right-of-use Assets Obtained In Exchange For New Operating Lease Liabilities		—			5,725
Weighted-average Remaining Lease Term—Finance Leases (Yrs.)		29.90			26.91
Weighted-average Remaining Lease Term—Operating Leases (Yrs.)		13.70			14.63
Weighted-average Discount Rate—Finance Leases %		3.75		%	3.82		%
Weighted-average Discount Rate—Operating Leases %		3.36		%	3.50		%

Lease cost information for the Company's leases is as follows:
	Three Months Ended
	March 31, 2020		March 31, 2019
Lease Cost:
Finance Lease Cost:
Amortization of Right-of-use assets	$	44	$	17
Interest on Lease Liabilities	50		15
Operating Lease Cost	207		173
Short-term Lease Cost	7		33
Variable Lease Cost	55		56
Total Lease Cost	$	363	$	294

# 36

Future Lease Payments at March 31, 2020 are as follows:
	Operating Leases		Financing Leases
Twelve Months Ended:
3/31/2021	$	776	$	240
3/31/2022	640		243
3/31/2023	563		132
3/31/2024	548		243
3/31/2025	515		252
Thereafter	4,028		8,110
Total Undiscounted Cash Flows	$	7,070	$	9,220
Less: Net Present Value Adjustment	1,468		3,971
Lease Liability	$	5,602	$	5,249

# 37

Note 11.    DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES (In Thousands)

Arrow is exposed to certain risks arising from both its business operations and economic conditions. Arrow principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Bank manages economic risks, including interest rate, primarily by managing the amount, sources and duration of its assets and liabilities and through the use of derivative instruments. Specifically, the Bank enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. Arrow's derivative financial instruments are used to manage differences in the amount, timing and duration of the Bank’s known or expected cash receipts and its known or expected cash payments principally related to certain fixed rate borrowings. Arrow also has interest rate derivatives that result from a service provided to certain qualifying customers and, therefore, are not used to manage interest rate risk in the Company’s assets or liabilities. The Company manages a matched book with respect to its derivative instruments in order to minimize its net risk exposure resulting from such transactions.

Derivatives Not Designated as Hedging Instruments

Arrow enters into interest rate swap agreements with its commercial customers to provide them with a long-term fixed rate, while simultaneously Arrow entered into offsetting interest rate swap agreements with a counterparty to swap the fixed rate to a variable rate to manage interest rate exposure.

These interest rate swap agreements are not designated as a hedge for accounting purposes. As the interest rate swap agreements have substantially equivalent and offsetting terms, they do not present any material exposure to the Arrow's consolidated statements of income. The Bank records its interest rate swap agreements at fair value and is presented on a gross basis within other assets and other liabilities on the consolidated balance sheets. Changes in the fair value of assets and liabilities arising from these derivatives are included, net, in other income in the consolidated statement of income.

The following table depicts the fair value adjustment recorded related to the notional amount of derivatives outstanding as well as the notional amount of the interest rate swap agreements.

Derivatives Not Designated as Hedging Instruments - Interest Rate Swap Agreements
	March 31, 2020		December 31, 2019		March 31, 2019
Fair value adjustment included in other assets	$	5,191	$	69	$	—
Fair value adjustment included in other liabilities	5,191		69		—
Notional amount	121,559		44,531		—

Derivatives Designated as Hedging Instruments

Arrow has entered into interest rate swaps to synthetically fix the variable rate interest payments associated with $20 million in outstanding subordinated trust securities. These agreements are designated as cash flow hedges.

For derivatives designated and that qualify as cash flow hedges of interest rate risk, the gain or loss on the derivative is recorded in AOCI and subsequently reclassified into interest expense in the same period during which the hedge transaction affects earnings. Amounts reported in AOCI related to derivatives will be reclassified to interest expense as interest payments are made on the Arrow's Junior Subordinated Obligations Issued to Unconsolidated Subsidiary Trusts borrowings.

The following table indicates the effect of cash flow hedge accounting on AOCI and on the unaudited interim consolidated statement of income.

Derivatives Designated as Hedging Instruments - Cash Flow Hedge Agreements
	March 31, 2020			December 31, 2019		March 31, 2019
Amount of loss recognized in AOCI	$	(294	)	$	—	$	—
Amount of gain reclassified from AOCI interest expense	—			—		—

Note 12.    COVID-19 PANDEMIC

The outbreak of the novel coronavirus (COVID-19) pandemic has impacted the global economy, including the banking sector and many industries in which our customers operate, in a variety of significant ways. For further discussion of the impact COVID-19 has had and may in the future have on Arrow and its financial results and operations, please refer to the risk factor included in Item 8.01 of Arrow's Current Report on Form 8-K filed April 24, 2020.

# 38

Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors

Arrow Financial Corporation:

Results of Review of Interim Financial Information

We have reviewed the consolidated balance sheet of Arrow Financial Corporation andsubsidiaries (the Company) as of March 31, 2020 and 2019, the related consolidated statements of income, comprehensive income, changes in stockholders’ equity and cash flows for the three-month periods ended March 31, 2020 and 2019, and the related notes (collectively, the consolidated interim financial information). Based on our reviews, we are not aware of any material modifications that should be made to the consolidated interim financial information for it to be in conformity with U.S. generally accepted accounting principles.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheet of the Company as of December 31, 2019, 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 February 28, 2020, 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, 2019, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

Basis for Review Results

This consolidated interim financial information is the responsibility of the Company’s management. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our reviews in accordance with the standards of the PCAOB. A review of consolidated 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 PCAOB, 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.

/s/ KPMG LLP

Albany, New York

May 7, 2020

# 39

Item 2.

ARROW FINANCIAL CORPORATION AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

March 31, 2020

NOTE ON TERMINOLOGY

In this Quarterly Report on Form 10-Q (this Report), 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, Arrow's performance is compared with that of the Company's "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 146 domestic bank holding companies with $3 to $10 billion in total consolidated assets as identified in the Federal Reserve Board’s "Bank Holding Company Performance Report" for December 31, 2019 (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.  The 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.  Active subsidiaries of Glens Falls National include Upstate Agency, LLC (an insurance agency that sells property and casualty insurance and also specializes in selling and servicing group health care policies and life insurance), North Country Investment Advisers, Inc. (a registered investment adviser that provides investment advice to Arrow's proprietary mutual funds) and Arrow Properties, Inc. (a real estate investment trust, or REIT). Arrow also owns directly two subsidiary business trusts, organized in 2003 and 2004, which issued trust preferred securities (TRUPs), which are still outstanding.

FORWARD LOOKING STATEMENTS

This Report on Form 10-Q contains statements that are not historical in nature but rather are based on the Company's 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 "may," "will," "expect," "believe," "anticipate," "estimate," "continue," and variations of such words and similar expressions are intended to identify such forward-looking statements. Examples of forward-looking statements include statements regarding the Company's asset quality, the level of allowance for credit losses, the sufficiency of liquidity sources, interest rate change exposure, changes in accounting standards, and the Company's tax plans and strategies. 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 Arrow's general perceptions of market conditions and trends in business activity, both the Company's and in the banking industry generally, as well as current management strategies for future operations and development.

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, our 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 the following, which are or may be amplified by the novel coronavirus (COVID-19) pandemic:

• the current and rapidly evolving COVID-19 pandemic and its impact on economic, market and social conditions;

• other rapid and dramatic changes in economic and market conditions;

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

• sudden changes in the market for products provided, such as real estate loans;

• significant changes in banking or other laws and regulations, including both enactment of new legal or regulatory measures or the modification or elimination of pre-existing measures;

• 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");

• competition from other sources (e.g., non-bank entities);

• similar uncertainties inherent in banking operations or business generally, including technological developments and changes; and

• other risks detailed from time to time within our filings with the Securities and Exchange Commission ("SEC").

The Company is under no duty to update any of the forward-looking statements after the date of this Report to conform such statements to actual results. All forward-looking statements, express or implied, included in this Report and the documents incorporated by reference and that are attributable to the Company are expressly qualified in their entirety by this cautionary statement. This cautionary statement should also be considered in connection with any subsequent written or oral forward-looking statements that the Company or any persons acting on our behalf may issue. This Report should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2019 (the 2019 Annual Report) and our other filings with the SEC.

# 40

USE OF NON-GAAP FINANCIAL MEASURES

The 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 rules, although the Company is 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 one financial institution's net interest income to that of another institution or in analyzing any 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, and 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 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 to better demonstrate a single institution’s performance over time. The Company follows 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).  The Company makes 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.

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, the Company 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 them from the impact of certain transactions or other material items of income or expense that are unusual or unlikely to be repeated.  The Company will do so only if it believes 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.

The Company believes that the non-GAAP financial measures disclosed 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.  Non-GAAP financial measures may differ from similar measures presented by other companies.

# 41

Arrow Financial Corporation Selected Quarterly Information (Dollars In Thousands, Except Per Share Amounts- Unaudited)
Quarter Ended	3/31/2020			12/31/2019			9/30/2019			6/30/2019			3/31/2019
Net Income	$	8,127		$	9,740		$	10,067		$	8,934		$	8,734
Transactions in Net Income (Net of Tax):
Net Changes in Fair Value of Equity Investments	(279		)	50			109			—			57
Share and Per Share Data:1
Period End Shares Outstanding	14,982			14,998			14,969			14,949			14,909
Basic Average Shares Outstanding	14,996			14,978			14,955			14,922			14,903
Diluted Average Shares Outstanding	15,026			15,026			14,991			14,963			14,956
Basic Earnings Per Share	$	0.54		$	0.65		$	0.67		$	0.60		$	0.59
Diluted Earnings Per Share	0.54			0.65			0.67			0.60			0.58
Cash Dividend Per Share	0.260			0.260			0.252			0.252			0.252
Selected Quarterly Average Balances:
Interest-Bearing Deposits at Banks	$	32,787		$	28,880		$	27,083		$	25,107		$	26,163
Investment Securities	603,748			582,982			545,073			584,679			611,161
Loans	2,394,346			2,358,110			2,308,879			2,255,299			2,210,642
Deposits	2,670,009			2,607,421			2,472,528			2,436,290			2,347,985
Other Borrowed Funds	170,987			177,877			231,291			250,283			327,138
Stockholders’ Equity	306,527			296,124			289,016			280,247			272,864
Total Assets	3,180,857			3,113,114			3,023,043			2,997,458			2,977,056
Return on Average Assets, annualized	1.03		%	1.24		%	1.32		%	1.20		%	1.19		%
Return on Average Equity, annualized	10.66		%	13.05		%	13.82		%	12.79		%	12.98		%
Return on Average Tangible Equity, annualized 2	11.55		%	14.18		%	15.05		%	13.96		%	14.22		%
Average Earning Assets	$	3,030,881		$	2,969,972		$	2,881,035		$	2,865,085		$	2,847,966
Average Paying Liabilities	2,362,515			2,293,804			2,213,642			2,235,462			2,224,403
Interest Income	28,226			28,367			27,952			27,227			26,213
Tax-Equivalent Adjustment  3	288			321			344			376			373
Interest Income, Tax-Equivalent 3	28,514			28,688			28,296			27,603			26,586
Interest Expense	5,220			5,449			5,649			5,520			5,092
Net Interest Income	23,006			22,918			22,303			21,707			21,121
Net Interest Income, Tax-Equivalent 3	23,294			23,239			22,647			22,083			21,494
Net Interest Margin, annualized	3.05		%	3.06		%	3.07		%	3.04		%	3.01		%
Net Interest Margin, Tax Equivalent, annualized 3	3.09		%	3.10		%	3.12		%	3.09		%	3.06		%
Efficiency Ratio Calculation: 4
Noninterest Expense	$	17,754		$	17,099		$	16,791		$	16,908		$	16,652
Less: Intangible Asset Amortization	58			60			61			44			79
Net Noninterest Expense	$	17,696		$	17,039		$	16,730		$	16,864		$	16,573
Net Interest Income, Tax-Equivalent 3	$	23,294		$	23,238		$	22,647		$	22,083		$	21,494
Noninterest Income	7,694			7,081			7,691			6,896			6,887
Less: Net Changes in Fair Value of Equity Invest.	(374		)	67			146			—			76
Net Gross Income	$	31,362		$	30,252		$	30,192		$	28,979		$	28,305
Efficiency Ratio 4	56.42		%	56.32		%	55.41		%	58.19		%	58.55		%
Period-End Capital Information:
Total Stockholders’ Equity (i.e. Book Value)	$	309,398		$	301,728		$	292,228		$	284,649		$	276,609
Book Value per Share 1	20.65			20.12			19.52			19.04			18.55
Goodwill and Other Intangible Assets, net	23,513			23,534			23,586			23,603			23,650
Tangible Book Value per Share 1,2	19.08			18.55			17.95			17.46			16.97
Capital Ratios:5
Community Bank Leverage Ratio	9.87		%
Tier 1 Leverage Ratio				9.98		%	10.04		%	9.88		%	9.73		%
Common Equity Tier 1 Capital Ratio				12.94		%	12.93		%	12.99		%	12.98		%
Tier 1 Risk-Based Capital Ratio				13.83		%	13.85		%	13.93		%	13.95		%
Total Risk-Based Capital Ratio				14.78		%	14.81		%	14.91		%	14.93		%
Assets Under Trust Admin. & Investment Mgmt.	$	1,342,531		$	1,543,653		$	1,485,116		$	1,496,966		$	1,483,259

# 42

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 27, 2019, 3% stock dividend.
2.	Non-GAAP Financial Measures Reconciliation: 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 the Company believes provide investors with information that is useful in understanding our financial performance. See "Use of Non-GAAP Financial Measures" on page 43.
		3/31/2020			12/31/2019			9/30/2019			6/30/2019			3/31/2019
	Total Stockholders' Equity (GAAP)	$	309,398		$	301,728		$	292,228		$	284,649		$	276,609
	Less: Goodwill and Other Intangible assets, net	23,513			23,534			23,586			23,603			23,650
	Tangible Equity (Non-GAAP)	$	285,885		$	278,194		$	268,642		$	261,046		$	252,959
	Period End Shares Outstanding	14,982			14,998			14,969			14,949			14,909
	Tangible Book Value per Share      (Non-GAAP)	$	19.08		$	18.55		$	17.95		$	17.46		$	16.97
	Net Income	8,127			9,740			10,067			8,934			8,734
	Return on Average Tangible Equity (Net Income/Tangible Equity - Annualized)	11.55		%	14.18		%	15.05		%	13.96		%	14.22		%
3.	Non-GAAP Financial Measures Reconciliation: 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 the Company believes provides investors with information that is useful in understanding our financial performance. See "Use of Non-GAAP Financial Measures" on page 43.
		3/31/2020			12/31/2019			9/30/2019			6/30/2019			3/31/2019
	Interest Income (GAAP)	$	28,226		$	28,367		$	27,952		$	27,227		$	26,213
	Add: Tax-Equivalent adjustment (Non-GAAP)	288			321			344			376			373
	Interest Income - Tax Equivalent (Non-GAAP)	$	28,514		$	28,688		$	28,296		$	27,603		$	26,586
	Net Interest Income (GAAP)	$	23,006		$	22,918		$	22,303		$	21,707		$	21,121
	Add: Tax-Equivalent adjustment (Non-GAAP)	288			321			344			376			373
	Net Interest Income - Tax Equivalent (Non-GAAP)	$	23,294		$	23,239		$	22,647		$	22,083		$	21,494
	Average Earning Assets	$	3,030,881		$	2,969,972		$	2,881,035		$	2,865,085		$	2,847,966
	Net Interest Margin (Non-GAAP)*	3.09		%	3.10		%	3.12		%	3.09		%	3.06		%
4.	Non-GAAP Financial Measures: Financial Institutions often use the "efficiency ratio", a non-GAAP ratio, as a measure of expense control. The Company believes the efficiency ratio provides investors with information that is useful in understanding our financial performance. The Company defines efficiency ratio as the ratio of our noninterest expense to our net gross income (which equals 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 43.
5.	For the current quarter, the Community Bank Leverage Ratio (CBLR) in the table above is an estimation. The previous Total Risk-Weighted Assets and Common Equity Tier 1 Capital amounts listed in the table below reflect actual results. The CBLR at March 31, 2020 listed below (i.e., 9.87%) exceeds the required minimum CBLR (i.e., 9.00%).
		3/31/2020			12/31/2019			9/30/2019			6/30/2019			3/31/2019
	Community Bank Leverage Ratio	9.87		%
	Total Risk Weighted Assets				$	2,237,127		$	2,184,214		$	2,121,541		$	2,075,115
	Common Equity Tier 1 Capital				289,409			282,485			275,528			269,363
	Common Equity Tier 1 Capital Ratio				12.94		%	12.93		%	12.99		%	12.98		%

     * Quarterly ratios have been annualized.

# 43

Average Consolidated Balance Sheets and Net Interest Income Analysis
(GAAP Basis)
(Dollars In Thousands)
Quarter Ended March 31:	2020							2019
				Interest		Rate					Interest		Rate
	Average			Income/		Earned/		Average			Income/		Earned/
	Balance			Expense		Paid		Balance			Expense		Paid
Interest-Bearing Deposits at Banks	$	32,787		$	124	1.52	%	$	26,163		$	195	3.02	%
Investment Securities:
Fully Taxable	399,307			2,193		2.21		378,120			2,369		2.54
Exempt from Federal Taxes	204,441			1,035		2.04		233,041			1,246		2.17
Loans	2,394,346			24,874		4.18		2,210,642			22,403		4.11
Total Earning Assets	3,030,881			28,226		3.75		2,847,966			26,213		3.73
Allowance for Credit Losses	(22,186		)					(20,108		)
Cash and Due From Banks	34,211							35,125
Other Assets	137,951							114,073
Total Assets	$	3,180,857						$	2,977,056
Deposits:
Interest-Bearing Checking Accounts	$	707,747		487		0.28		$	768,354		482		0.25
Savings Deposits	1,092,980			2,471		0.91		833,832			1,601		0.78
Time Deposits of $250,000 or More	126,046			533		1.70		79,346			396		2.02
Other Time Deposits	264,755			1,000		1.52		212,785			713		1.36
Total Interest-Bearing Deposits	2,191,528			4,491		0.82		1,894,317			3,192		0.68
Short-Term Borrowings	92,444			208		0.90		264,471			1,421		2.18
FHLBNY Term Advances & Other Long-Term Debt	73,297			471		2.58		62,667			464		3.00
Finance Leases	5,246			50		3.83		2,948			15		2.06
Total Interest-Bearing Liabilities	2,362,515			5,220		0.89		2,224,403			5,092		0.93
Noninterest-bearing deposits	478,481							453,668
Other Liabilities	33,334							26,121
Total Liabilities	2,874,330							2,704,192
Stockholders’ Equity	306,527							272,864
Total Liabilities and Stockholders’ Equity	$	3,180,857						$	2,977,056
Net Interest Income				$	23,006						$	21,121
Net Interest Spread						2.86	%						2.80	%
Net Interest Margin						3.05	%						3.01	%

# 44

OVERVIEW

The following discussion and analysis focuses on and reviews the results of operations for the three-month period ended March 31, 2020 and the financial condition as of March 31, 2020 and 2019.  The discussion below should be read in conjunction with the selected quarterly and annual information set forth above and the Consolidated Financial Statements and other financial data presented elsewhere in this Report.  When necessary, prior-year financial information has been reclassified to conform to the current-year presentation.

COVID-19 Pandemic:

In March 2020, the World Health Organization recognized COVID-19 as a pandemic. In response, the United States federal government and various state and local governments have, among other actions, imposed travel and business restrictions and required or advised communities in which we do business to adopt stay-at-home orders and social distancing guidelines, causing some businesses to adjust, reduce or suspend operating activities. Like many businesses, we expect the operations and financial results of Arrow to be adversely impacted by the COVID-19 pandemic. The severity, magnitude and duration of the current pandemic are still uncertain, rapidly changing and hard to predict.

Arrow has been proactive and continually assessing the potential impact of the pandemic. It formed a Business Continuity Task Force in advance of the impending arrival of the pandemic to Upstate New York. The task force, representing leadership from across the organization, has overseen a robust and expansive effort to protect employees and customers while continuing to deliver essential banking services during the pandemic. In that regard, Arrow has been limiting access at all facilities to appointment-only and encouraging customers to use no-contact alternatives such as digital banking, drive-ins and ATMs. Additionally, Arrow expanded remote work arrangements for a large portion of its employee base, discontinued employee travel, minimized in-person meetings, and implemented social distancing for essential employees who remained on-site. Arrow believes that between remote working arrangements and cross training initiatives, current human capital resources should be able to continue operations during the current COVID-19 pandemic, absent unforeseen facts.

Demand for the Small Business Administration’s Paycheck Protection Program has been significant. Both of Arrow’s subsidiary banks are proudly participating in the program as a way to deliver relief for small businesses in Upstate New York. In order to process the large volume of Paycheck Protection Program applications, Arrow reinforced its lending team with resources and support from across the Company. Arrow believes it will be able to effectively manage its liquidity position while being able to satisfy the significant demand for the Small Business Administration’s Paycheck Protection Program.

The COVID-19 pandemic has significantly impacted economic activity and markets around the world, and we expect it will negatively impact Arrow's business in numerous ways. In particular, the rapid rise in unemployment and the mandated closure of non-essential businesses in New York, will most likely reduce loan production as well as impact borrowers' ability to satisfy their obligations. Investments are analyzed to determine if any impairment not considered temporary exists. Municipal investments may be impacted if tax revenue deceases significantly. Management will continue to evaluate investment securities for impairment. Arrow has increased its allowance for loan losses as a result of the uncertainty surrounding the ability of its borrowers to satisfy loan obligations to Arrow. Arrow will continue to assess potential loan losses. Arrow does not anticipate any impairment of its right-of-use lease assets, goodwill or other intangible assets as a result of COVID-19, however, the Company will continue to assess impairment throughout the pandemic.

We continue to monitor closely the Company’s financial health and liquidity and the impact of the pandemic on the Company. As we cannot predict the duration or scope of the pandemic or its impact on economic and financial markets or its impact on our business, we are not able to reasonably estimate the overall impact on the Company. For further discussion of the impact COVID-19 has had and may in the future have on Arrow and its financial results and operations, please refer to the risk factor included in Item 8.01 of Arrow's Current Report on Form 8-K filed April 24, 2020.

Summary of Q12020 Financial Results: Net income for the first quarter of 2020 was $8.1 million, compared to $8.7 million in the first quarter of 2019. Although loan growth slowed in March, primarily as a result of the COVID-19 pandemic, total loans grew in the first quarter by $28.1 million from December 31, 2019 to $2.4 billion. Net interest income increased to $23.0 million in the first quarter of 2020, compared to $21.1 million for the comparable quarter of 2019.

Diluted earnings per share (EPS) for the quarter was $0.54, a decrease of 6.9% from the EPS of $0.58 reported for the first quarter of 2019. Return on average equity (ROE) for the first quarter of 2020decreased to 10.66%, as compared to a ROE of 12.98% for the quarter ended March 31, 2019. Return on average assets (ROA) for the 2020first quarter was 1.03%, a decrease from an ROA of 1.19% for the quarter ended March 31, 2019.

Total loans reached $2.4 billion as of March 31, 2020, which represents an increase of $179.0 million, or 8.0% as compared to March 31, 2019. The consumer loan portfolio grew by $77.9 million, or 10.4%, as compared to March 31, 2019, primarily within the indirect automobile lending program. Total outstanding residential real estate loans increased$54.5 million, or 6.3%, as compared to March 31, 2019. Total outstanding commercial loans increased $46.6 million, or 7.4%, as compared to March 31, 2019.

At March 31, 2020, deposit balances reached $2.8 billion, up$320.9 million, or 12.9%, from the prior-year level. Noninterest-bearing deposits represented 17.4% of total deposits at March 31, 2020, compared to 18.2% of total deposits on March 31, 2019. At March 31, 2020, other time deposits were $245.9 million, a decrease of $17.1 million compared to the prior year. Municipal deposits increased $174.7 million, or 28.1% from March 31, 2019. Total combined Federal Home Loan Bank Overnight and Term Advances declined $110.0 million from December 31, 2019.

First quarter 2020 net interest income increased to $23.0 million, up 8.9% from $21.1 million in the comparable quarter of 2019. The net interest margin was 3.05% for the quarter, compared to 3.01% for the first quarter of 2019. The increase in net interest margin from the prior year was primarily the result of both the increase in the deposit balances as described above combined with the decrease in market rates. The yield on earning assets has been consistent between years with increased loan yields offset by declining yields on investments.

# 45

Noninterest income for the three months endedMarch 31, 2020 was $7.7 million, compared to $6.9 million in the comparable 2019 quarter. For the first quarter of 2020, the fair value of equity securities at March 31, 2020 decreased $374 thousand primarily as a result of the equity market disruption related to the COVID-19 pandemic. In addition, $866 thousand of interest rate swap income was recorded in the first quarter of 2020.

Noninterest expense for the first quarter of 2020increased6.6% to $17.8 million, from $16.7 million for the first quarter of 2019. Salaries and benefits increased$1.1 million, primarily the result of increased cost of health insurance benefits.

Asset quality remained strong at March 31, 2020, with continued low levels of nonperforming loans and net charge-offs. Nonperforming loans at March 31, 2020, were $5.5 million, up$168 thousand from the level at March 31, 2019. Net charge-offs, expressed as an annualized percentage of average loans outstanding, were 0.05% for the three-month period endedMarch 31, 2020, consistent with March 31, 2019. The allowance for loan losses was $23.6 million at March 31, 2020, which represented 0.98% of loans outstanding, as compared to 0.91% at March 31, 2019. The loss provision expense for the first quarter of 2020 was $2.8 million, up$2.3 million from the provision expense for the comparable 2019 quarter. Although credit quality remains very strong, the increase in loss provision reflects the uncertainty resulting from the COVID-19 pandemic.

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

Regulatory Capital and Increase in Stockholders' Equity:The federal bank regulators have issued a final rule to implement the “community bank leverage ratio”, introducing an optional simplified measure of capital adequacy for qualifying community banking organizations (the CBLR framework).  To qualify for the CBLR framework, a community banking organization must satisfy certain requirements, including having a leverage ratio of greater than 9%, less than $10 billion in total consolidated assets, and limited amounts of off-balance-sheet exposures and trading assets and liabilities.  A qualifying community banking organization that opts into the CBLR framework and meets all requirements under the CBLR framework will be considered to have met the well-capitalized ratio requirements under the “prompt corrective action” regulations and will not be required to report or calculate risk-based capital ratios. Subsequently, Section 4012 of the Coronavirus Aid, Relief, and Economic Security (CARES) Act required the federal banking agencies to temporarily lower the threshold for election of the CBLR framework, issuing two interim final rules to set the CLBR at 8% as of the second quarter of 2020 and then gradually re-establish the CBLR at 9%.

Under the interim final rules, the CBLR will be set at 8% beginning in the second quarter of 2020 through the end of the year. Thus, community banks that have a leverage ratio of 8% or greater and meet certain other criteria may elect to use the CBLR framework. Beginning in 2021, the CBLR will increase to 8.5% for the calendar year. Community banks will have until January 1, 2022, before the leverage ratio requirement to use the CBLR framework will return to 9%.

The CBLR final rule became effective as of January 1, 2020, and Arrow and both subsidiary banks utilized the CBLR framework for purposes of filing their Form FR Y-9C and call reports for the first quarter of 2020. At March 31, 2020, the CBLR ratio for the Company and both subsidiary banks exceeded the 9% minimum threshold and therefore continued to qualify as "well-capitalized" under the regulatory capital classification guidelines.

Stockholders’ equity was $309.4 million at March 31, 2020, an increase of $7.7 million, or 2.5%, from the December 31, 2019 level of $301.7 million, and an increase of $32.8 million, or 11.9%, from the prior-year level. The increase in stockholders' equity over the first three months of 2020 principally reflected the following factors: (i) $8.13 million of net income for the period, plus (ii) other comprehensive income of $3.95 million, plus (iii) issuance of $1.01 million of common stock through employee benefit and dividend reinvestment plans; reduced by (iv) cash dividends of $3.90 million; and (v) repurchases of common stock of $1.51 million. The components of the change in stockholders’ equity since year-end 2019 are presented in the Consolidated Statement of Changes in Stockholders’ Equity on page 6, and are discussed in more detail in the next section.

At March 31, 2020, book value per share was $20.65, up by 11.3% over the prior-year level. Tangible book value per share (a non-GAAP measure that deducts intangible assets from stockholders' equity) was $19.08, an increase of $2.11, or 12.4%, over the level as of March 31, 2019. See the disclosure on page 41 related to the use of non-GAAP financial measures including tangible book value.

On March 31, 2020, the Company's closing stock price was $27.87, representing a trading multiple of 1.46 to tangible book value. In the first quarter of 2020, the Company paid a quarterly cash dividend of $0.26. Further discussion of dividends is included in the Capital Components; Stock Repurchases; Dividends section located on page 56.

Loan Quality: Net charge-offs for the first quarter of 2020 were $322 thousand as compared to $295 thousand for the comparable 2019 quarter. The ratio of net charge-offs to average loans (annualized) was 0.05% for the first quarter of 2020 consistent with the first quarter of 2019. At March 31, 2020, the allowance for credit losses was $23.6 million representing 0.98% of total loans, which is an increase from the March 31, 2019 ratio of 0.91%. Although credit quality remains very strong, the increase in loan loss provision expense reflects the uncertainty resulting from the COVID-19 pandemic. As permitted by the CARES Act, Arrow has elected to defer the adoption of the Current Expected Credit Losses ("CECL") methodology in determining credit losses.

Nonperforming loans were $5.5 million at March 31, 2020, representing 0.23% of period-end loans, a decrease from the March 31, 2019 ratio of 0.24%. The ratio continues to compare favorably with the weighted average ratio of the peer group of 0.53% at December 31, 2019.

# 46

Loan Segments: During the quarter ended March 31, 2020, total loans grew by $28.1 million, or 1.2% as compared to the balance at December 31, 2019. The largest increase was in commercial real estate loans, which increased during the quarter by $15.6 million, or 3.1%. In addition, consumer loans expanded $13.5 million, or 1.7% and commercial loans increased by $3.6 million, or 2.4%. The economic factors resulting from the COVID-19 pandemic will most likely adversely impact loan growth for the remainder of the year.

• Commercial and Commercial Real Estate Loans: Combined, these loans comprise 27.9% of the total loan portfolio at period-end. Commercial property values in the Company's region have remained stable in recent periods leading to the pandemic. Appraisals on nonperforming and watched CRE loan properties are updated as deemed necessary, usually when the loan is downgraded or when there has been significant market deterioration since the last appraisal. The mandatory closure of nonessential business in New York will impact the Bank's customer base. Government intervention, with programs such as the Small Business Administration’s Paycheck Protection Program, may mitigate the economic risk to both Arrow and its customers, however the full impact cannot be determined at this time.

• Consumer Loans: These loans (primarily automobile loans) comprised 34.2% of the total loan portfolio at period-end. Consumer automobile loans at March 31, 2020, were $819 million, or 99.3% of this portfolio segment. In the first three months of 2020, the Company did not experience any significant increase in the delinquency rate or in the percentage of nonperforming loans in this segment. The vast majority of automobile loans are initiated through the purchase of vehicles by consumers with automobile dealers. The physical sale of vehicles through dealerships has been curtailed and not deemed essential as part of the response to the COVID-19 pandemic in New York and Vermont, our primary dealer network. Thus, the volume of originations of consumer loans will be negatively impacted, although the magnitude of the impact cannot be determined.

• Residential Real Estate Loans: These loans, including home equity loans, made up 37.9% of the total loan portfolio at period-end. The residential real estate market in the Company's service area has been stable in recent periods. The Company originated nearly all of the residential real estate loans currently held in the loan portfolio and applies conservative underwriting standards to loan originations. The Company typically sells a portion of residential real estate mortgage originations into the secondary market. The ratio of the sales of originations to total originations tends to fluctuate from period to period based on market conditions. Due to the COVID-19 pandemic, it is not yet possible to determine the long term economic impact of the mandated closure of non-essential business and its resulting impact on our residential real estate loan portfolio.

Liquidity and Access to Credit Markets: The Company has not experienced any liquidity problems or special concerns thus far in 2020, or at any time in recent history. Arrow’s liquidity position provides the necessary flexibility to address any unexpected near-term disruptions that may develop as a result of the COVID-19 pandemic such as: reduced cash-flows from the investment and loan portfolios and aggressive funding of programs associated with response efforts, including the Small Business Administration’s Paycheck Protection Program.  Interest-bearing cash balances at March 31, 2020 were $106.0 million compared to $25.0 million at March 31, 2019.  Contingent collateralized lines of credit are established and available through the FHLBNY and FRB, totaling $1.2 billion. The terms of Arrow's lines of credit have not changed significantly in recent periods (see the general liquidity discussion on page 57). Historically, the Company has 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 (the main liability-based sources are an overnight borrowing arrangement with 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). Regular liquidity stress tests and tests of the contingent liquidity plan are performed to ensure that an adequate amount of available funds can be generated to meet a wide variety of potential liquidity crises including the current COVID-19 pandemic.

Visa Class B Common Stock: Arrow's subsidiary bank, Glens Falls National, like other Visa member banks, bears 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 amount funded in its litigation escrow account. On September 18, 2018, Visa issued a press release announcing that it and other defendants entered into a settlement agreement with class plaintiffs in the related litigation case. But certain merchants opted out of the class settlement and filed separate litigation cases. Once the class action and other merchant litigation cases are settled and the balance in the litigation escrow account is sufficient to cover the litigation claims and related expenses, Arrow could potentially realize a gain on the receipt of Visa Class A common stock. On September 27, 2019, Visa deposited $300 million into the litigation escrow account that was established pursuant to Visa’s U.S. retrospective responsibility plan, which reduces the conversion rate of Class B shares to Class A shares. This did not have a significant effect on the number of Class B shares currently convertible to Class A shares by Glens Falls National. At March 31, 2020, Glens Falls National held 27,771 shares of Visa Class B common stock, and utilizing the conversion ratio to Class A common stock at that time, these Class B shares would convert to 45,000 shares of Visa Class A common stock. Since the litigation settlement is not certain, the Company does not recognize any economic value for these shares.

# 47

CHANGE IN FINANCIAL CONDITION

Summary of Selected Consolidated Balance Sheet Data

(Dollars in Thousands)

	March 31, 2020		At Period-End December 31, 2019		March 31, 2019		$ Change From December			$ Change From March			% Change From December (not annualized)		% Change From March
Interest-Bearing Bank Balances	$	106,004	$	23,186	$	25,031	$	82,818		$	80,973		357.2	%	323.5	%
Securities Available-for-Sale	378,186		357,334		298,812		20,852			79,374			5.8	%	26.6	%
Securities Held-to-Maturity	238,520		245,065		279,400		(6,545		)	(40,880		)	(2.7	)%	(14.6	)%
Equity Securities	1,689		2,063		1,850		(374		)	(161		)	(18.1	)%	(8.7	)%
Loans (1)	2,414,193		2,386,120		2,235,208		28,073			178,985			1.2	%	8.0	%
Allowance for loan losses	23,637		21,187		20,373		2,450			3,264			11.6	%	16.0	%
Earning Assets (1)	3,143,971		3,024,085		2,848,179		119,886			295,792			4.0	%	10.4	%
Total Assets	$	3,291,332	$	3,184,275	$	2,984,883	$	107,057		$	306,449		3.4	%	10.3	%
Noninterest-Bearing Deposits	$	489,151	$	484,944	$	453,089	$	4,207		$	36,062		0.9	%	8.0	%
Interest-Bearing Checking Accounts	793,425		689,221		823,301		104,204			(29,876		)	15.1	%	(3.6	)%
Savings Deposits	1,146,683		1,046,568		866,861		100,115			279,822			9.6	%	32.3	%
Time Deposits over $250,000	135,854		123,968		83,834		11,886			52,020			9.6	%	62.1	%
Other Time Deposits	245,892		271,353		263,012		(25,461		)	(17,120		)	(9.4	)%	(6.5	)%
Total Deposits	$	2,811,005	$	2,616,054	$	2,490,097	$	194,951		$	320,908		7.5	%	12.9	%
Federal Funds Purchased and Securities Sold Under Agreements to Repurchase	$	57,909	$	51,099	$	58,407	$	6,810		$	(498	)	13.3	%	(0.9	)%
FHLBNY Advances - Overnight	—		130,000		74,500		(130,000		)	(74,500		)	(100.0	)%	(100.0	)%
FHLBNY Advances - Term	50,000		30,000		35,000		20,000			15,000			66.7	%	42.9	%
Junior Subordinated Obligations Issued to Unconsolidated Subsidiary Trusts	20,000		20,000		20,000		—			—			—	%	—	%
Stockholders' Equity	309,398		301,728		276,609		7,670			32,789			2.5	%	11.9	%

(1) Includes Nonaccrual Loans.

Changes in Earning Assets: The loan portfolio at March 31, 2020, was $2.4 billion, an increase of $28.1 million, or 1.2%, from the December 31, 2019 level and up by $179.0 million, or 8.0%, from the March 31, 2019 level. The following trends were experienced in our largest segments:

• Commercial and commercial real estate loans: This segment of the loan portfolio increased by $12.0 million, or 1.8%, during the first three months of 2020.

• Consumer loans (primarily automobile loans through indirect lending): As of March 31, 2020, these loans, primarily auto loans, increased by $13.5 million, or 1.7%, from the December 31, 2019 balance, reflecting a strong demand for new and used vehicles throughout our region-wide dealer network during the time leading up to COVID-19 pandemic. As previously stated, the physical sale of vehicles through dealerships has been curtailed and not deemed essential as part of the New York State and Vermont responses to the COVID-19 pandemic. The volume of originations of consumer loans will be impacted. The magnitude of the impact cannot be determined at this time.

• Residential real estate loans:This segment increased during the first three months of 2020 by $2.5 million, or 0.3%. The likely impact of the COVID-19 pandemic on the volume of residential real estate loans is difficult to determine. We expect that high unemployment and the mandated closure of non-essential businesses in New York State will have an adverse impact on new originations. The rapid decline of interest rates may, however, increase demand for refinancing loans, both with existing and new customers.

Changes in Sources of Funds: Deposit balances reached $2.8 billion, up$320.9 million, or 12.9%, from the prior-year level. Noninterest-bearing deposits represented 17.4% of total deposits at March 31, 2020, compared to 18.2% of total deposits on March 31, 2019. At March 31, 2020, other time deposits were $245.9 million, a decrease of $17.1 million compared to the prior year. Municipal deposits increased $174.7 million, or 28.1% from March 31, 2019. Total combined Federal Home Loan Bank Overnight and Term Advances declined $110.0 million from December 31, 2019.

# 48

Municipal Deposits:Fluctuations in balances of interest-bearing checking accounts are largely the result of timing and behavior of municipal deposits.  Municipal deposits on average represent 20% to 25% of total deposits. Municipal deposits are typically placed in interest-bearing checking, savings and various time deposit accounts.

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 seasonal behavior, the overall level of municipal deposit balances fluctuates from year-to-year as a result of local economic factors as well as competition from other banks and non-bank entities.

FINANCIAL CONDITION

Investment Portfolio Trends

The table below presents the changes in the period-end balances for available-for-sale, held-to-maturity and equity securities from December 31, 2019 to March 31, 2020 (in thousands).

	(Dollars in Thousands)
	Fair Value at Period-End							Net Unrealized Gains (Losses) For Period Ended
	3/31/2020		12/31/2019		Change			3/31/2020			12/31/2019			Change
Securities Available-for-Sale:
U.S. Agency Securities	$	5,181	$	5,054	$	127		$	179		$	52		$	127
State and Municipal Obligations	723		764		(41		)	—			—			—
Mortgage-Backed Securities	371,482		350,716		20,766			6,149			772			5,377
Corporate and Other Debt Securities	800		800		—			(200		)	(200		)	—
Total	$	378,186	$	357,334	$	20,852		$	6,128		$	624		$	5,504
Securities Held-to-Maturity:
State and Municipal Obligations	$	207,103	$	212,319	$	(5,216	)	$	2,955		$	4,076		$	(1,121	)
Mortgage-Backed Securities	35,701		37,299		(1,598		)	1,329			477			852
Total	$	242,804	$	249,618	$	(6,814	)	$	4,284		$	4,553		$	(269	)
Equity Securities	$	1,689	$	2,063	$	(374	)	$	—		$	—		$	—

At March 31, 2020, the Company held no investment securities in the securities portfolios that consisted of or included, directly or indirectly, obligations of foreign governments or governmental agencies of foreign issuers.

In the periods referenced above, Mortgage-Backed Securities consisted solely of mortgage pass-through securities and Collateralized Mortgage Obligations ("CMOs") issued or guaranteed by U.S. federal agencies.  Mortgage pass-through securities provide to the investor monthly portions of principal and interest pursuant to the contractual obligations of the underlying mortgages. CMOs are pools of mortgage-backed securities, the repayments on which have generally been separated into two or more components (tranches), where each tranche has a separate estimated life and yield.  The Company's practice has been to purchase pass-through securities and CMOs that are issued or guaranteed by U.S. federal agencies, and the tranches of CMOs purchased are generally those having shorter average lives and/or durations. As a result of payment deferrals on underlying loan collateral that make up mortgage-backed securities, some cashflows may be temporarily impacted.

Other-Than-Temporary Impairment

Each quarter all investment securities with a fair value less than amortized cost are evaluated in the available-for-sale portfolio, the held-to-maturity portfolio and the equity securities portfolio, to determine if there exists other-than-temporary impairment for any such security as defined under generally accepted accounting principles. The evaluation also examined the potential impact of the COVID-19 pandemic on other-than-temporary impairment. There were no other-than-temporary impairment losses in the first three months of 2020.

Change in Net Unrealized Securities Gains (Losses): Nearly all of the change in net unrealized gains or losses during recent periods has been attributable to changes in the market rates during the periods in question, with no change in the credit-worthiness of the issuers. Fixed income valuations increased sharply, while equities dropped, in the period primarily as the result of market disruptions associated with the COVID-19 pandemic.

# 49

Investment Sales, Purchases and Maturities

There were no sales of investment securities within the three-month periods ended March 31, 2020 or 2019.

The following table summarizes purchases of investment securities within the available-for-sale and held-to-maturity portfolios for the three-month periods ended March 31, 2020 and 2019, as well as proceeds from the maturity and calls of investment securities within each portfolio for the respective periods presented:

(In Thousands)	Three Months Ended
Purchases:	3/31/2020		3/31/2019
Available-for-Sale Portfolio
Mortgage-Backed Securities	$	33,201	$	—
Maturities & Calls	$	17,444	$	21,261

	Three Months Ended
Purchases:	3/31/2020		3/31/2019
Held-to-Maturity Portfolio
State and Municipal Obligations	$	717	$	1,457
Maturities & Calls	$	7,075	$	5,319

Loan Trends

The following three tables present, for each of the last five quarters, the quarterly average balances by loan type, the percentage of total loans represented by each loan type and the annualized yield of each loan category. Over the last five quarters, the average balances for Commercial, Commercial Real Estate, Consumer and Residential Real Estate have steadily increased, although at different rates. As result of the economic impact of the COVID-19 pandemic, it is uncertain if this consistent growth will continue in the remaining quarters of 2020.

Quarterly Average Loan Balances

(Dollars in Thousands)

	Quarter Ended
	3/31/2020		12/31/2019		9/30/2019		6/30/2019		3/31/2019
Commercial	$	140,486	$	133,550	$	125,498	$	120,979	$	118,634
Commercial Real Estate	518,931		505,639		493,819		492,673		488,836
Consumer	818,892		817,463		809,641		775,634		742,775
Residential Real Estate	916,037		901,458		879,921		866,013		860,397
Total Loans	$	2,394,346	$	2,358,110	$	2,308,879	$	2,255,299	$	2,210,642

Percentage of Total Quarterly Average Loans

	Quarter Ended
	3/31/2020		12/31/2019		9/30/2019		6/30/2019		3/31/2019
Commercial	5.9	%	5.7	%	5.4	%	5.4	%	5.4	%
Commercial Real Estate	21.6	%	21.4	%	21.4	%	21.8	%	22.1	%
Consumer	34.2	%	34.7	%	35.1	%	34.4	%	33.6	%
Residential Real Estate	38.3	%	38.2	%	38.1	%	38.4	%	38.9	%
Total Loans	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%

# 50

Quarterly Yield on Loans

	Quarter Ended
	3/31/2020		12/31/2019		9/30/2019		6/30/2019		3/31/2019
Commercial	4.52	%	4.54	%	4.60	%	4.64	%	4.43	%
Commercial Real Estate	4.34	%	4.53	%	4.57	%	4.53	%	4.58	%
Consumer	3.97	%	4.01	%	3.95	%	3.85	%	3.67	%
Residential Real Estate	4.20	%	4.20	%	4.27	%	4.28	%	4.33	%
Total Loans	4.18	%	4.19	%	4.23	%	4.18	%	4.11	%

The average yield of the overall total loan portfolio increased throughout 2019 and remained steady for the large portion of the 1st quarter of 2020. The COVID-19 pandemic and the rapid decline to historic low in market rates will lower loan yields for the remainder of 2020.

Maintenance of High Quality in the Loan Portfolio: In the first three months of 2020, prior to the COVID-19 pandemic, there were no significant fluctuations in the quality of the loan portfolio or any segment thereof. In general, residential real estate loans have historically been underwritten to secondary market standards for prime loans and the Company has not engaged in subprime mortgage lending as a business line. Similarly, high underwriting standards have generally been applied to commercial and commercial real estate lending operations and generally in the indirect lending program as well. The economic events related to the COVID-19 pandemic, specifically high unemployment and the mandated closure of nonessential business, may impact the ability of our borrowers to satisfy their obligations.

Commercial Loans and Commercial Real Estate Loans: Combined commercial and commercial real estate loan originations continued to grow in the period leading up to the COVID-19 pandemic.

Substantially all commercial and commercial real estate loans in the loan portfolio were extended to businesses or borrowers located in the Company's regional markets. A portion of the loans in the commercial portfolio have variable rates tied to Prime, LIBOR or FHLBNY rates.

Many of the commercial and commercial real estate loans are in industries heavily impacted by the COVID-19 pandemic. Arrow is working closely with customers who wish to obtain Small Business Administration Paycheck Protection Program funding. Also, additional government intervention, if any, may mitigate the economic risk to both Arrow and its customers, however, the extent of such intervention and its impact cannot be determined at this time.

Consumer Loans: At March 31, 2020, consumer loans (primarily automobile loans originated through dealerships located primarily in upstate New York and Vermont) continues to be a significant component of business, comprising more than a third of this total loan portfolio. The physical sale of vehicles through dealerships has been curtailed and not deemed essential as part of the New York State and Vermont response to the COVID-19 pandemic. Accordingly, we believe, the volume of originations of consumer loans will be adverselyimpacted. However, the magnitude of the impact cannot yet be determined.

New consumer loan volume for the first three months of 2020 was $95.9 million, down from the $100.4 million originated in the first three months of 2019.

For credit quality purposes, the Company assigns potential automobile loan customers into one of four tiers, ranging from lower to higher quality in terms of anticipated credit risk. The Company's experienced lending staff not only utilizes credit evaluation software tools but also reviews and evaluates each loan individually prior to the loan being funded. The Company believes that this disciplined approach to evaluating risk has contributed to maintaining the strong credit quality in this portfolio. The COVID-19 pandemic has created significant unemployment, which may impact borrowers' ability to satisfy their obligations to the Company. Government intervention may mitigate a significant portion of the credit risk, however, the extent of such intervention and its impact cannot be determined at this time.

Residential Real Estate Loans: In recent years, residential real estate loans, including home equity loans, have represented the largest category of the total loan portfolio. Gross originations for residential real estate loans (including refinancings of mortgage loans) for the first three months of 2020 were $32.4 million. The Company has also sold portions of these originations in the secondary market. In the first three months of 2020, the Company sold $8.2 million, or 25.5%, of originations. In the first three months of 2019, $3.6 million, or 15.5%, of originations were sold. The Company expects to continue to sell a portion of mortgage loan originations in upcoming periods if market conditions warrant. It is not currently possible to determine the long term economic impact of the COVID-19 pandemic, which has resulted in the mandated closure of non-essential business and potential unemployment.

# 51

Deposit Trends

The following tables provide information on trends in the balance and mix of the 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. Savings deposits and total time deposits, both over and under $250,000, have increased each of the last five quarters as a result of the migration to higher yielding deposit accounts due to the previous rise in short-term market rates, which occurred for the majority of 2019. Market rates, beginning to decline prior to the COVID-19 pandemic, reached historic lows at March 31, 2020.

Quarterly Average Deposit Balances

(Dollars in Thousands)

	Quarter Ended
	3/31/2020		12/31/2019		9/30/2019		6/30/2019		3/31/2019
Noninterest-bearing deposits	$	478,481	$	491,494	$	490,177	$	454,130	$	453,668
Interest-Bearing Checking Accounts	707,747		724,668		686,017		733,327		768,354
Savings Deposits	1,092,980		1,003,612		924,868		879,026		833,832
Time Deposits over $250,000	126,046		120,321		86,018		97,703		79,346
Other Time Deposits	264,755		267,326		285,448		272,104		212,785
Total Deposits	$	2,670,009	$	2,607,421	$	2,472,528	$	2,436,290	$	2,347,985

Percentage of Total Quarterly Average Deposits

	Quarter Ended
	3/31/2020		12/31/2019		9/30/2019		6/30/2019		3/31/2019
Noninterest-bearing deposits	17.9	%	18.8	%	19.8	%	18.6	%	19.3	%
Interest-Bearing Checking Accounts	26.5		27.8		27.7		30.1		32.7
Savings Deposits	41.0		38.5		37.5		36.0		35.5
Time Deposits over $250,000	4.7		4.6		3.5		4.0		3.4
Other Time Deposits	9.9		10.3		11.5		11.2		9.1
Total Deposits	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%

Quarterly Cost of Deposits

	Quarter Ended
	3/31/2020		12/31/2019		9/30/2019		6/30/2019		3/31/2019
Demand Deposits	—	%	—	%	—	%	—	%	—	%
Interest-Bearing Checking Accounts	0.28	%	0.30	%	0.29	%	0.25	%	0.25	%
Savings Deposits	0.91	%	0.98	%	0.99	%	0.92	%	0.78	%
Time Deposits over $250,000	1.70	%	1.88	%	2.08	%	2.11	%	2.02	%
Other Time Deposits	1.52	%	1.67	%	1.74	%	1.67	%	1.36	%
Total Deposits	0.68	%	0.72	%	0.73	%	0.68	%	0.55	%

During the quarter ended March 31, 2020, the total cost of deposits decreased. The Federal Reserve cut the targeted short-term rates on two occasions, one cut was 50 basis points and the other was 100 basis points in response to the economic uncertainty related to the COVID-19 pandemic. The balance sheet of the Company is well positioned for a variety of rate environments, see Part I, Item 3, entitled "Quantitative and Qualitative Disclosures About Market Risk," for further discussion.

Non-Deposit Sources of Funds

The Company's other sources of funds include securities sold under agreements to repurchase, overnight advances and term advances from the FHLBNY. The securities sold under agreements to repurchase are short-term in nature and are collateralized by investment securities. The term advances from the FHLBNY are fixed rate non-callable advances with original maturities of three to five years.

Arrow no longer relies on TRUPs as a source of new funds. As a result of the passage of Dodd-Frank in 2010 and its removal of Tier 1 regulatory capital treatment for TRUPs issued after Dodd-Frank's grandfathering date, the Company, like other banking organizations of Arrow's size 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 the consolidated balance sheet as of March 31, 2020 (i.e., 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. This is further discussed under "Capital Resources" beginning on page 55 of this Report. These trust preferred securities are subject to early redemption by the Company if the proceeds cease to qualify as Tier 1 capital of Arrow for any reason, or if certain other unanticipated but negative events should occur. An example of such an event would be an adverse change in tax laws that might deny the Company the ability to deduct interest paid on these obligations for federal income tax purposes.

In the first quarter of 2020, Arrow entered into an interest rate swap agreement to synthetically fix the variable rate interest payments associated with $20 million in outstanding subordinated trust securities.

# 52

ASSET QUALITY

The following table presents information related to the 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)

	3/31/2020			12/31/2019			9/30/2019			6/30/2019			3/31/2019
Loan Balances:
Period-End Loans	$	2,414,193		$	2,386,120		$	2,335,591		$	2,280,308		$	2,235,208
Average Loans, Year-to-Date	2,394,346			2,283,707			2,258,633			2,233,094			2,210,642
Average Loans, Quarter-to-Date	2,394,346			2,358,110			2,308,879			2,255,299			2,210,642
Period-End Assets	3,291,332			3,184,275			3,112,822			3,005,750			2,984,883
Allowance for loan losses, Year-to-Date:
Allowance for loan losses, Beginning of Period	$	21,187		$	20,196		$	20,196		$	20,196		20,196
Provision for Loan Losses, YTD	2,772			2,079			1,445			927			472
Loans Charged-off, YTD	(481		)	(1,735		)	(1,232		)	(830		)	(462		)
Recoveries of Loans Previously Charged-off	159			647			522			402			167
Net Charge-offs, YTD	(322		)	(1,088		)	(710		)	(428		)	$	(295	)
Allowance for loan losses, End of Period	$	23,637		$	21,187		$	20,931		$	20,695		$	20,373
Allowance for loan losses, Quarter-to-Date:
Allowance for loan losses, Beginning of Period	$	21,187		$	20,931		$	20,695		$	20,373		$	20,196
Provision for Loan Losses, QTD	2,772			634			518			455			472
Loans Charged-off, QTD	(481		)	(503		)	(402		)	(368		)	(462		)
Recoveries of Loans Previously Charged-off	159			125			120			235			167
Net Charge-offs, QTD	(322		)	(378		)	(282		)	(133		)	(295		)
Allowance for loan losses, End of Period	$	23,637		$	21,187		$	20,931		$	20,695		$	20,373
Nonperforming Assets, at Period-End:
Nonaccrual Loans	$	4,943		$	4,005		$	3,465		$	4,949		$	5,143
Loans Past Due 90 or More Days and Still Accruing Interest	437			253			1,066			457			64
Restructured and in Compliance with   Modified Terms	136			143			150			142			141
Total Nonperforming Loans	5,516			4,401			4,681			5,548			5,348
Repossessed Assets	160			139			76			115			123
Other Real Estate Owned	782			1,122			1,198			1,258			1,322
Total Nonperforming Assets	$	6,458		$	5,662		$	5,955		$	6,921		$	6,793
Asset Quality Ratios:
Allowance to Nonperforming Loans	428.52		%	481.41		%	447.15		%	373.02		%	380.95		%
Allowance to Period-End Loans	0.98		%	0.89		%	0.90		%	0.91		%	0.91		%
Provision to Average Loans (Quarter) (1)	0.47		%	0.11		%	0.09		%	0.08		%	0.09		%
Provision to Average Loans (YTD) (1)	0.47		%	0.09		%	0.09		%	0.08		%	0.09		%
Net Charge-offs to Average Loans (Quarter) (1)	0.05		%	0.06		%	0.05		%	0.02		%	0.05		%
Net Charge-offs to Average Loans (YTD) (1)	0.05		%	0.05		%	0.04		%	0.04		%	0.05		%
Nonperforming Loans to Total Loans	0.23		%	0.18		%	0.20		%	0.24		%	0.24		%
Nonperforming Assets to Total Assets	0.20		%	0.18		%	0.19		%	0.23		%	0.23		%
(1) Annualized

Provision for Loan Losses

Through the provision for loan losses, an allowance is maintained that reflects the Company's 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 determined to be secured and is the process of collection.

As permitted by the CARES Act, Arrow has elected to defer the adoption of the Current Expected Credit Losses ("CECL") methodology in determining credit losses.

In the first quarter of 2020, the Company made a $2.77 million provision for loan losses, compared to a provision of $472 thousand for the first quarter of 2019 and a provision of $634 thousand for the fourth quarter of 2019. The significant increase in loss provision for

# 53

loan losses reflects the uncertainty resulting from the COVID-19 pandemic despite the continued strong asset quality of Arrow. See Note 3 to the unaudited interim consolidated financial statements for a discussion on how the Company classifies credit quality indicators as well as the balance in each category.

The ratio of the allowance for credit losses to total loans was 0.98% at March 31, 2020, an increase from 0.89% at December 31, 2019 and an increase of 7 basis points from 0.91% at March 31, 2019.

The accounting policy relating to the allowance for credit losses is considered 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 the results of operations. The process for determining the provision for loan losses is described in Note 3 to the unaudited interim consolidated financial statements.

Risk Elements

Nonperforming assets at March 31, 2020 amounted to $6.5 million, up from the $5.7 million total at December 31, 2019 and a decrease of $0.3 million, from March 31, 2019. For the three-month periods ended March 31, 2020 and 2019, ratios of nonperforming assets to total assets have remained below the average ratios for the peer group. (See page 40 for a discussion of the peer group.) At December 31, 2019, the ratio of loans past due 90 or more days plus nonaccrual loans plus other real estate owned to total assets was 0.18%, well below the 0.44% ratio of the peer group at such date (the latest date for which peer group information is available). At March 31, 2020 the ratio was 0.20%, which is below the most recent ratio for the 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 nonperforming assets, but entail heightened risk.

Loans Past Due 30-89 Days and Accruing Interest ($ in 000's)
	3/31/2020		12/31/2019		3/31/2019
Commercial Loans	$	244	$	192	$	157
Commercial Real Estate Loans	—		266		208
Residential Real Estate Loans	1,632		1,960		1,552
Consumer Loans - Primarily Indirect Automobile	7,015		8,305		6,113
Total Loans Past Due 30-89 Days    and Accruing Interest	$	8,891	$	10,723	$	8,030

At March 31, 2020, the loans in the above-referenced category totaled $8.9 million, a decrease of $1.8 million, or 17.1%, from the $10.7 million of such loans at December 31, 2019. The March 31, 2020 total of non-current loans equaled 0.37% of loans then outstanding, compared to 0.49% at December 31, 2019 and 0.36% at March 31, 2019. The decrease from December 31, 2019 is primarily attributable to a decrease in delinquent automobile loans as well as residential real estate loans.

The number and dollar amount of performing loans that demonstrate characteristics of potential weakness from time-to-time (potential problem loans) typically is a very small percentage of the loan portfolio. See the table of Credit Quality Indicators in Note 3 to the unaudited interim consolidated financial statements. The Company considers 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 March 31, 2020 was $35.5 million, up from the dollar amount of such loans at December 31, 2019, when the amount was $32.4 million. These loans will continue to be closely monitored and the Company expects to collect all payments of contractual principal and interest in full on these classified loans. Total nonperforming assets at period-end decreased by $0.3 million, or 4.9% from March 31, 2019.

The economic impact of the COVID-19 pandemic, specifically unemployment levels and the mandated closure of nonessential businesses, may impact the borrowers' ability to satisfy their obligations, and may therefore result in delinquencies. Government intervention, on both the federal and state level, have been deployed to mitigate a significant portion of the credit risk. Arrow cannot make a determination of the overall impact on its business of the COVID-19 pandemic at this time.

As of March 31, 2020, the Company held for sale one commercial property and one residential property in other real estate owned. The Company does 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.

# 54

Loan Deferrals Related to COVID-19 Pandemic

The COVID-19 pandemic has created economic uncertainty resulting in increased temporary unemployment as well as the mandated closure of nonessential businesses. In the table below, the loan portfolio is presented with loan deferrals as the result of the COVID-19 pandemic as of March 31, 2020. In accordance with the CARES Act, the deferrals listed below are not considered troubled debt restructuring.

COVID-19 Deferrals by Loan Category at March 31, 2020 ($ in 000's)
	Balances by Sector					Deferrals
		Total		% of Total Loans		Balance		% of Loan Segment		% of Total Loans
Commercial and Commercial Real Estate Loans:
Lessors of Non-Residential Real Estate		$	129,880	5.4	%	$	1,064	0.2	%	—	%
Health Care and Social Assistance		104,177		4.3	%	1,341		0.2	%	0.1	%
Lessors of Residential Real Estate		99,569		4.1	%	527		0.1	%	—	%
Hotels & Motels		97,914		4.1	%	3,787		0.6	%	0.2	%
Arts/Recreation/Restaurants/Vacation Camps		39,385		1.6	%	3,102		0.5	%	0.1	%
Retail		30,226		1.3	%	6,326		0.9	%	0.3	%
Construction & Related		17,551		0.7	%	216		—	%	—	%
Other		154,528		6.4	%	22,312		3.2	%	0.9	%
Total Commercial and Commercial Real Estate Loans		673,230		27.9	%	38,675		5.7	%	1.6	%
Consumer Loans		824,709		34.2	%	2,643		0.3	%	0.1	%
Residential Real Estate Loans		916,254		37.9	%	126		—	%	—	%
Total Loans		2,414,193				41,444				1.7	%

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.  

As reported in the Regulatory Reform section above, the federal bank regulators have issued a final rule to implement the CBLR, introducing an optional simplified measure of capital adequacy for qualifying community banks that satisfy certain requirements, including having a leverage ratio of greater than 9%, less than $10 billion in total consolidated assets, and limited amounts of off-balance-sheet exposures and trading assets and liabilities.  A qualifying community bank that opts into the CBLR framework and meets all requirements under the CBLR framework will be considered to have met the well-capitalized ratio requirements under the “prompt corrective action” regulations and will not be required to report or calculate risk-based capital ratios.  The CBLR is calculated as the ratio of “tier 1 capital” divided by “average total consolidated assets.”  This final rule was effective as of January 1, 2020, and qualifying community banks can utilize the CBLR framework for purposes of filing their call reports or Form FR Y-9C, as applicable, for the first quarter of 2020 (i.e., as of March 31, 2020). Arrow elected to utilize the CBLR framework beginning with the first quarter of 2020.

Subsequently, Section 4012 of the CARES Act required the federal banking agencies to temporarily lower the threshold for election of the CBLR framework, issuing two interim final rules to set the CLBR at 8% as of the second quarter of 2020 and then gradually re-establish the CBLR at 9%. Under the interim final rules, the CBLR will be set at 8% beginning in the second quarter of 2020 through the end of the year. Thus, community banks that have a leverage ratio of 8% or greater and meet certain other criteria may elect to use the CBLR framework. Beginning in 2021, the CBLR will increase to 8.5% for the calendar year. Community banks will have until January 1, 2022, before the leverage ratio requirement to use the CBLR framework will return to 9%.

Prompt Corrective Action Capital Classifications. Under the current capital classifications, a banking institution is considered "well-capitalized" if it meets the minimum CBLR levels. If a banking entity fails to qualify for the CBLR framework or if the banking entity's CBLR ratio falls below the minimum threshold, the banking entity will be subject to the regulatory capital guidelines established under the Dodd Frank legislation. Under the Dodd Frank capital guidelines, 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".

Current Capital Ratios:The table below sets forth the regulatory capital ratios of Arrow's holding company and two subsidiary banks, Glens Falls National and Saratoga National, under the current CBLR Rules, as of March 31, 2020:

# 55

	Community Bank
	Leverage Ratio
Arrow Financial Corporation	9.87%
Glens Falls National Bank & Trust Co.	9.44%
Saratoga National Bank & Trust Co.	9.49%

At March 31, 2020, Arrow and its subsidiary banks exceeded the minimum regulatory capital ratios established under the CBLR framework and each also qualified as "well-capitalized", the highest category in the new capital classification scheme established by federal bank regulatory agencies, as described above.

Capital Components; Stock Repurchases; Dividends

Stockholders' Equity:Stockholders’ equity was $309.4 million at March 31, 2020, an increase of $7.7 million, or 2.5%, from the December 31, 2019 level of $301.7 million, and an increase of $32.8 million, or 11.9%, from the prior-year level. The increase in stockholders' equity over the first three months of 2020 principally reflected the following factors: (i) $8.13 million of net income for the period, plus (ii) other comprehensive income of $3.95 million, plus (iii) issuance of $1.01 million of common stock through employee benefit and dividend reinvestment plans; reduced by (iv) cash dividends of $3.90 million; and (v) repurchases of common stock of $1.51 million under the Board-approved stock repurchase program described below.

Trust Preferred Securities:In each of 2003 and 2004, the Company 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 Arrow, 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 not qualify as Tier 1 capital under bank regulatory capital guidelines. For Arrow, 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, Arrow's outstanding TRUPs continue to qualify as Tier 1 regulatory capital, subject to such limitations.

In the first quarter of 2020, Arrow entered into an interest rate swap agreement to synthetically fix the variable rate interest payments associated with $20 million in outstanding subordinated trust securities. The effective fixed rate is 3.43% until maturity. These agreements are designated as cash flow hedges.

Stock Repurchase Program: In October 2019, the Board of Directors approved a $5.0 million stock repurchase program, effective January 1, 2020 (the 2020 Repurchase Program), under which management is authorized, in its discretion, to permit the Company to repurchase up to $5 million of shares of Arrow's common stock during 2020, in the open market or in privately negotiated transactions, to the extent management believes the Company's stock is reasonably priced and such repurchases appear to be an attractive use of available capital and in the best interests of shareholders. This 2020 Repurchase Program replaced a similar repurchase program which was in effect during 2019 (the 2019 program), which also authorized the repurchase of up to $5.0 million of shares of Arrow's common stock. As of March 31, 2020 approximately $1.5 million had been used under the 2020 Repurchase Program to repurchase Arrow shares. This total does not include repurchases of Arrow's Common Stock other than through its 2020 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.

Dividends:The Company's common stock is traded on NasdaqGS^® under the symbol AROW. The high and low stock prices for the past five quarters listed below represent actual sales transactions, as reported by NASDAQ. On April 29, 2020, the Board of Directors declared a 2020 second quarter cash dividend of $0.26 payable on June 15, 2020. Per share amounts and share counts in the following tables have been restated for the September 27, 20193% stock dividend.

					Cash
	Market Price				Dividends
	Low		High		Declared
2019
First Quarter	$	29.57	$	35.19	$	0.252
Second Quarter	30.96		33.93		0.252
Third Quarter	30.26		35.31		0.252
Fourth Quarter	32.03		38.31		0.260
2020
First Quarter	$	20.79	$	38.04	$	0.260
Second Quarter (dividend payable June 15, 2020)	TBD		TBD		0.260

# 56

	Quarter Ended March 31
	2020			2019
Cash Dividends Per Share	$	0.260		$	0.252
Diluted Earnings Per Share	0.54			0.58
Dividend Payout Ratio	48.15		%	43.45		%
Total Equity (in thousands)	309,398			$	276,609
Shares Issued and Outstanding (in thousands)	14,982			14,909
Book Value Per Share	$	20.65		$	18.55
Intangible Assets (in thousands)	23,513			23,650
Tangible Book Value Per Share	$	19.08		$	16.97

LIQUIDITY

The objective of effective liquidity management is to ensure that the Company has the ability to raise cash when needed at a reasonable cost.  This includes the capability of meeting expected and unexpected obligations to the Company's customers at any time.  Given the uncertain nature of customer demands and the need to maximize earnings, the Company must have available reasonably priced sources of funds, both on- and off-balance sheet, that can be accessed quickly in time of need. With the COVID-19 pandemic, liquidity management is critical for Arrow. Arrow’s liquidity position provides the necessary flexibility to address any unexpected near-term disruptions that may develop as a result of the COVID-19 pandemic such as: reduced cash-flows from the investment and loan portfolios and aggressive funding of programs associated with response efforts, including the Small Business Administration’s Paycheck Protection Program. 

The primary sources of available liquidity are overnight investments in federal funds sold, interest bearing bank balances at the Federal Reserve Bank of New York, 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.  The securities available-for-sale portfolio was $378.2 million at March 31, 2020, an increase of $20.9 million, from the year-end 2019 level. Due to the potential for volatility in market values, the Company may not always be able to sell securities on short notice at their carrying value, even to provide needed liquidity. Arrow also held interest-bearing cash balances at March 31, 2020 of $106.0 million compared to $25.0 million at March 31, 2019.

In addition to liquidity from cash, short-term investments, investment securities and loans, the Company has supplemented available operating liquidity with additional off-balance sheet sources such as a federal funds lines of credit with correspondent banks and credit lines with the FHLBNY. The federal funds lines of credit are with two correspondent banks totaling $52 million which were not drawn on during the three months ended March 31, 2020.

To support the borrowing relationship with the FHLBNY, the Company has pledged collateral, including residential mortgage, home equity and commercial real estate loans. At March 31, 2020, the Company had outstanding collateral obligations with the FHLBNY of $115 million; as of that date, the unused borrowing capacity at the FHLBNY was approximately $620 million. Brokered deposits have also been identified as an available source of funding accessible in a relatively short time period. At March 31, 2020, the balance of outstanding brokered deposits totaled $108.1 million. Also, the Company's 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 are maintained for contingency liquidity purposes. At March 31, 2020, the amount available under this facility was approximately $593 million, and there were no advances then outstanding.

Arrow performs regular liquidity stress tests and tests of the contingent liquidity plan to ensure that an adequate amount of available funds can be generated to meet a wide variety of potential liquidity crises including the current COVID-19 pandemic.

The Company measures and monitors 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 the investment securities portfolio, cash flows from the loan portfolio, the stable core deposit base and the significant borrowing capacity, the Company believes that the available liquidity is sufficient to meet all funding needs that may arise in connection with the COVID-19 pandemic or any other reasonably likely events or occurrences, although there can be no assurance that it will be sufficient. At March 31, 2020, the basic liquidity ratio, including the FHLBNY collateralized borrowing capacity, was 20.9% of total assets, or $558 million in excess of the internally-set minimum target ratio of 4%.

The Company did not experience any significant liquidity constraints in the three-month period ended March 31, 2020 and did not experience any such constraints in recent prior years. The Company has not at any time during such period been forced to pay above-market rates to obtain retail deposits or other funds from any source.

# 57

RECENTLY ISSUED ACCOUNTING STANDARDS

The following accounting standards have been issued and become effective for the Company at a future date:

In June 2016, the FASB issued ASU 2016-13 "Financial Instruments - Credit Losses" ("CECL") which will change the way financial entities measure expected credit losses for financial assets, primarily loans. Under this ASU, the "incurred loss" model will be replaced with an "expected loss" model which will recognize losses over the life of the instrument and requires consideration of a broader range of reasonable and supportable information. Currently, credit losses on available-for-sale securities reduce the carrying value of the instrument and cannot be reversed. Under CECL, the amount of the credit loss is carried as a valuation allowance and can be reversed. The standard also requires expanded credit quality disclosures. In April 2019, the FASB issued ASU 2019-04 "Codification Improvements to Topic 326, Financial Instruments-Credit Losses; Topic 815, Derivatives and Hedging; and Topic 825, Financial Instruments," which clarifies that the estimate of expected credit losses should include expected recoveries of financial assets, and that contractual extension or renewal options that are not unconditionally cancellable by the lender are considered when determining the contractual term over which expected credit losses are measured. The Company's loan terms for contractual extensions and renewal options are unconditionally cancellable by the Company (that is, the Company has no obligation to extend or renew existing loans), and therefore are not considered in measuring expected credit losses. In May 2019, the FASB issued ASU 2019-05 "Targeted Transition Relief," which allows entities to irrevocably elect the fair value option for certain financial assets measured at amortized cost, not including held-to-maturity investment securities which will continue to be measured at amortized cost. This will apply to those institutions that elect the fair value option on newly originated or purchased financial assets, to avoid the possibility of dual measurement methodologies for identical or similar financial assets.

As permitted by the Coronavirus Aid, Relief, and Economic Security ("CARES") Act, Arrow has elected to defer the adoption of the Current Expected Credit Losses ("CECL") methodology in determining credit losses. The initial adjustment will not be reported in earnings, but as the cumulative effect of a change in accounting principle and the adoption will require additional disclosures in future periods. The Company has held CECL working group meetings that included individuals from various functional areas relevant to the implementation of CECL. The Company's CECL working group has developed accounting policies for credit losses including, among other things, management’s decisions regarding portfolio segmentation, life of loan considerations, and a reasonable and supportable forecasting methodology. The CECL pronouncement describes several acceptable methodologies for calculating expected losses on a loan or a pool of loans. The Company has identified the discounted cash flow method for determining losses for the commercial loan portfolios and the residential real estate portfolios, and the vintage method for the consumer indirect loan portfolio. As a result of analyses performed, including the availability of future economic data, the Company will utilize an 18-month reasonable and supportable forecast period, and revert to an historic loss rate using the straight-line method over a two year reversion period. The Company has identified the economic data that it believes best correlate with expected loan losses through the use of various regression analyses of historical economic information and loan losses. The adoption of this standard will change the way qualitative factors are determined as compared to the current incurred loss allowance for loan losses model.

The Company has performed a parallel run as of December 31, 2019 and is in process of reviewing the most recent model run, reviewing the results of model back-testing, finalizing certain assumptions including qualitative adjustments, and incorporating the feedback from the third-party model validation process into the model. The Company has also developed a control framework and is in process of finalizing controls. The Company continues to monitor the effect of this guidance, as well as regulatory guidance, and evaluate the effect it will have on the consolidated financial statements, disclosures and processes and internal controls.

Based on the December 31, 2019 parallel run, review of the portfolio, including the composition, characteristics and quality of the underlying loans, and the prevailing economic conditions and forecasts as of the adoption date, the Company believes that the adjustment to retained earnings related to the initial adoption of CECL will result in an immaterial impact. The Company will remain a well-capitalized financial institution under the CBLR framework. Regulators have developed two deferral options related to the adoption of CECL and the resulting computation of regulatory capital ratios. The initial deferral method, the 2019 CECL Rule, allows a financial institution to elect a three-year deferral of the initial CECL adoption amount for the computation of regulatory capital. An additional deferral method, the Interim Final Rule, allows a financial institution that implements CECL before the end of 2020, the option to delay for two years an estimate of CECL's effect on regulatory capital, followed by a three-year transition period. Arrow is in the process of evaluating these deferral methods.

In August 2018, the FASB issued ASU 2018-14 "Disclosure Framework-Changes to the Disclosure Requirements for Defined Benefit Plans" which applies to all companies that provide defined benefit pension or other postretirement benefit plans for their employees. Certain disclosure requirements have been eliminated such as reporting the amounts in accumulated other comprehensive income expected to be recognized as components of net periodic benefit cost over the next year, and reporting the effects of a one-percentage-point change in the assumed healthcare cost trend rate on the aggregate of the service cost and interest cost components of net periodic benefit cost and on the benefit obligation for postretirement healthcare benefits. New required disclosures for reporting the weighted-average interest rate used to credit cash balance and similar plans that have a promised interest credit, the reasons for significant gains and losses affecting benefit obligations and other requirements for reporting aggregate information related to pension plans. For Arrow, the standard becomes effective at December 31, 2020. The Company does not expect that the adoption of this change affecting defined benefit plan disclosures will have a material impact on its financial position or the results of operations.

In December 2019, the FASB issued ASU 2019-12 "Simplifying the Accounting for Income Taxes" (Topic 740), which removes certain exceptions to the general principles in Topic 740 and improves consistent application of and simplifies GAAP for other areas of Topic 740 by clarifying and amending existing guidance. This ASU is effective for fiscal years beginning after December 15, 2020 and interim periods within those fiscal years, with early adoption permitted. Arrow will adopt this standard effective on January 1, 2021. The Company does not expect that the adoption of this standard will have a material impact on its financial position or the results of operations in periods subsequent to its adoption.

# 58

RESULTS OF OPERATIONS

Three Months Ended March 31, 2020 Compared With

Three Months Ended March 31, 2019

Summary of Earnings Performance

(Dollars in Thousands, Except Per Share Amounts)

	Three Months Ended
	March 31, 2020			March 31, 2019			Change			% Change
Net Income	$	8,127		$	8,734		$	(607	)	(6.9	)%
Diluted Earnings Per Share	0.54			0.58			(0.04		)	(6.9	)%
Return on Average Assets	1.03		%	1.19		%	(0.16		)%	(13.4	)%
Return on Average Equity	10.66		%	12.98		%	(2.32		)%	(17.9	)%

Net income was $8.1 million and diluted earnings per share (EPS) of $.54 for the first quarter of 2020, compared to net income of $8.7 million and diluted EPS of $.58 for the first quarter of 2019. Return on average assets (ROA) for the first quarter of 2020 was 1.03%, up from 1.19% in the first quarter of 2019. In addition, return on average equity (ROE) decreased to 10.66% for the first quarter of 2020, down from 12.98% in the first quarter of 2019.

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

(Dollars in Thousands)

	Three Months Ended
	March 31, 2020			March 31, 2019			Change			% Change
Interest and Dividend Income	$	28,226		$	26,213		$	2,013		7.7	%
Interest Expense	5,220			5,092			128			2.5	%
Net Interest Income	23,006			21,121			1,885			8.9	%
Average Earning Assets(1)	3,030,881			2,847,966			182,915			6.4	%
Average Interest-Bearing Liabilities	2,362,515			2,224,403			138,112			6.2	%
Yield on Earning Assets(1)	3.75		%	3.73		%	0.02			0.5	%
Cost of Interest-Bearing Liabilities	0.89			0.93			(0.04		)	(4.3	)
Net Interest Spread	2.86			2.80			0.06			2.1
Net Interest Margin	3.05			3.01			0.04			1.3

⁽¹⁾ Includes Nonaccrual Loans.

Net interest income for the recently completed quarter increased by $1.9 million, or 8.9%, from the first quarter of 2019, due primarily to loan growth and balance sheet mix. Total loans increased$28.1 million in the first quarter of 2020. In addition, average earning assets increased 6.4% from March 31, 2019. In order to fund the consistent loan growth, total average-interest-bearing liabilities increased 6.2% from the first quarter of 2019. Net interest margin increased 4 basis points in the first quarter of 2020 to 3.05%, from 3.01% during the first quarter of 2019. Average earning asset yields were 2 basis points higher as compared to the first quarter of 2019 due primarily to the increase of loans as a percentage of earning assets. The cost of interest-bearing liabilities decreased 4 basis points from the quarter ended March 31, 2019. The Company defines net interest margin as net interest income divided by average earning assets, annualized. 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 Arrow's 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 53, the provision for loan losses for the first quarter of 2020 was $2.77 million, compared to a provision of $472 thousand for the first quarter of 2019.

# 59

Noninterest Income

Summary of Noninterest Income

(Dollars in Thousands)

	Three Months Ended
	March 31, 2020			March 31, 2019		Change			% Change
Income From Fiduciary Activities	$	2,213		$	2,107	$	106		5.0	%
Fees for Other Services to Customers	2,451			2,402		49			2.0	%
Insurance Commissions	1,632			1,719		(87		)	(5.1	)%
Net (Loss) Gain on Securities Transactions	(374		)	76		(450		)	(592.1	)%
Net Gain on the Sale of Loans	213			104		109			104.8	%
Other Operating Income	1,559			479		1,080			225.5	%
Total Noninterest Income	$	7,694		$	6,887	$	807		11.7	%

Total noninterest income in the current quarter was $7.7 million, an increase of $807 thousand from the comparable quarter of 2019. Income from fiduciary activities for the first quarter of 2020increased by $106 thousand, or 5.0% from the first quarter of 2019.

Fees for other services to customers were $2.5 million for the first quarter of 2020. Fees were consistent with the first quarter of 2019.

Insurance commissions decreased to $1.6 million for the first quarter of 2020 compared to $1.7 million for the first quarter of 2019, due primarily to a decline in the employee benefits sector of the business.

Net loss on security transactions of $374 thousand for the first quarter of 2020 was the result in the decrease in the fair value of equity securities.

Net gain on the sale of loans in the first quarter of 2020increased by $109 thousand from the first quarter of 2019. The change was a result of favorable market conditions leading to an increase in loan sale volume. See page 51 for the discussion of loan sales.

Other operating income increased $1.1 million from the comparable quarter in 2019, primarily the result of fees received as part of interest rate swap agreements.

Noninterest Expense

Summary of Noninterest Expense

(Dollars in Thousands)

	Three Months Ended
	March 31, 2020			March 31, 2019			Change			% Change
Salaries and Employee Benefits	$	10,383		9,319			$	1,064		11.4	%
Occupancy Expense of Premises, Net	1,449			1,420			29			2.0	%
Technology and Equipment Expense	3,352			3,141			211			6.7	%
FDIC and FICO Assessments	219			212			7			3.3	%
Amortization	58			79			(21		)	(26.6	)%
Other Operating Expense	2,293			2,481			(188		)	(7.6	)%
Total Noninterest Expense	$	17,754		$	16,652		$	1,102		6.6	%
Efficiency Ratio	56.42		%	58.55		%	(2.13		)	(3.6	)%

Noninterest expense for the first quarter of 2020 was $17.8 million, an increase of $1.1 million, or 6.6%, from the first quarter of 2019. Salaries and benefit expenses increased $1.1 million, or 11.4%, from the comparable quarter in 2019. The increase in salaries and benefits was primarily due to the increase in the cost of health insurance benefits. Technology and equipment expenses have increased from the previous year as a result of the continued efforts with ongoing projects to enhance operational efficiencies.

The efficiency ratio continues to be solid at 56.42% for the first quarter of 2020 and 58.55% for the comparable 2019 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. The Company calculates the efficiency ratio as the ratio of noninterest expense (excluding, under the Company's 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 41 of this Report under the heading "Use of Non-GAAP Financial Measures" and the related tabular information and notes on pages 42 and 43 of this Report. The efficiency ratio included by the Federal Reserve Board in its "Bank Holding Company Performance Reports" excludes net securities gains or losses from the denominator (as does the Company's calculation), but unlike the Company's ratio does not exclude intangible asset amortization from the numerator. The Company's efficiency ratios in recent periods have generally compared favorably to the ratios of the peer group as disclosed in the Federal Reserve Performance Reports (see page 40 for a discussion of the peer group). For the three-month period ended December 31, 2019 (the most recent reporting period for which peer group information is available), the peer group's efficiency ratio was 60.47% compared to the Company's ratio of 56.32% (not adjusted for the definitional difference).

# 60

Income Taxes

Summary of Income Taxes

(Dollars in Thousands)

	Three Months Ended
	March 31, 2020			March 31, 2019			Change			% Change
Provision for Income Taxes	$	2,047		$	2,150		$	(103	)	(4.8	)%
Effective Tax Rate	20.1		%	19.8		%	0.3			1.5	%

The increase in the effective tax rate in the first three months ended March 31, 2020 over the three months ended March 31, 2019 was primary due to the reduction in tax exempt income combined with the reduced tax benefit related to stock based compensation.

# 61

Item 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

In addition to credit risk in the loan portfolio and liquidity risk, discussed earlier, the Company's business activities also generate market risk.  Market risk is the possibility that changes in future market rates (interest rates) or prices (market value of financial instruments) will make the Company's position (i.e., assets and operations) less valuable.  The Company's primary market risk is interest rate volatility. The ongoing monitoring and management of interest rate risk is an important component of the 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 the asset/liability profile based upon estimated market risk sensitivity, policy limits and overall market interest rate levels and trends.  

Changes in market interest rates, whether increases or decreases, can trigger repricing and changes in the pace of payments for both assets and liabilities (prepayment risk). This may individually or in combination affect net interest income, net interest margin, and ultimately net income, either positively or negatively. ALCO utilizes the results of a detailed and dynamic simulation model to quantify this interest rate risk by projecting net interest income in various interest rate scenarios.  

The Company's standard simulation model applies a parallel shift in interest rates, ramped over a 12-month period, to capture the impact of changing interest rates on net interest income.  The results are compared to ALCO policy limits which specify a maximum tolerance level for net interest income exposure over a one-year horizon, assuming no balance sheet growth and a 200 basis point upward and a 100 basis point downward shift in interest rates. Additional tools to monitor potential longer-term interest rate risk, including periodic stress testing involving hypothetical sudden and significant interest rate spikes, are also evaluated.

The following table summarizes the percentage change in net interest income as compared to the base scenario, which assumes no change in market interest rates as generated from the standard simulation model. The results are presented for each of the first two years of the simulation period for the 200 basis point increase in interest rate scenario and the 100 basis point decrease in interest rate scenario.

As of March 31, 2020:

	Change in Interest Rate
	+ 200 basis points	- 100 basis points
Calculated change in Net Interest Income - Year 1	(3.43)%	0.38%
Calculated change in Net Interest Income - Year 2	(0.78)%	(8.99)%

Historically, there has existed an inverse relationship between changes in prevailing rates and the Company's net interest income, suggesting that liabilities and sources of funds generally reprice more quickly than earning assets (near-term liability sensitivity). However, when net interest income is simulated over a longer time frame, this exposure is limited, and actually reverses, as asset yields continue to reprice while the cost of funding reaches assumed ceilings or floors (long-term asset sensitivity).

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, the Company 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 will differ due to: prepayment/refinancing levels likely 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 and other internal/external variables.  Furthermore, the sensitivity analysis does not reflect actions that ALCO might take in responding to or anticipating changes in interest rates. The COVID-19 pandemic may impact markets, rates, behavior and other estimates used in the above scenarios.

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 March 31, 2020. Based upon that evaluation, senior management, including the Chief Executive Officer and Chief Financial Officer, concluded that disclosure controls and procedures were effective. Further, there were no changes made in the Company's internal control over financial reporting that occurred during the most recent fiscal quarter that had materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

# 62

PART II - OTHER INFORMATION

Item 1.

Legal Proceedings

The Company, including its subsidiary banks, is 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, the Company is often the subject of, or a party to, various legal claims by other parties against the Company, by the Company against other parties, or involving the Company, which arise in the normal course of business. The various pending legal claims against the Company will not, in the opinion of management based upon consultation with counsel, result in any material liability.

Item 1.A.

Risk Factors

The Risk Factors identified in the Company's Annual Report on Form 10-K for the year ended December 31, 2019, continue to represent the most significant risks to the Company's 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 the Annual Report on Form 10-K for the fiscal year ended December 31, 2019, as supplemented by the risk factor included in Item 8.01 of the Company's Current Report on Form 8-K filed April 24, 2020.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

Unregistered Sales of Equity Securities

None.

Issuer Purchases of Equity Securities

The following table presents information about purchases by Arrow during the three months ended March 31, 2020 of common stock (our only class of equity securities registered pursuant to Section 12 of the Securities Exchange Act of 1934):

First Quarter 2020 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 2
January	1,091	$	37.17	—	$	5,000,000
February	12,056	33.06		9,448	4,692,520
March	60,000	28.96		40,573	3,493,345
Total	73,147	29.76		50,021

¹The total number of shares purchased by the Company and the average price paid per share listed in columns (A) and (B) consist of (i) any shares purchased in such periods in open market or private transactions under the Arrow Financial Corporation Automatic Dividend Reinvestment Plan (the "DRIP") by the administrator of the DRIP, (ii) shares surrendered or deemed surrendered to Arrow in such periods by holders of options to acquire Arrow common stock received by them under Arrow's long-term incentive plans in connection with their stock-for-stock exercise of such options and (iii) shares purchased under the publicly-announced 2020 Repurchase Program. In the months indicated, the listed number of shares purchased included the following number of shares purchased by Arrow through such methods: January - DRIP purchases (1,091 shares); February - DRIP purchases (2,608 shares) and repurchased under the 2020 Repurchase Program (9,448 shares); and March - DRIP purchases (19,427 shares) and repurchased under the 2020 Repurchase Program (40,573 shares)

²Includes only those shares acquired by Arrow pursuant to its publicly-announced stock repurchase programs. Our only publicly-announced stock repurchase program in effect for the first quarter of 2020 was the 2020 Repurchase Program approved by the Board of Directors and announced in October 2019, under which the Board authorized management, in its discretion, to repurchase from time to time during calendar year 2020, in the open market or in privately negotiated transactions, up to $5 million of Arrow common stock subject to certain exceptions.

Item 3.

Defaults Upon Senior Securities - None

Item 4.

Mine Safety Disclosures - None

# 63

Item 5.

Other Information - None

Item 6.

Exhibits

Exhibit Number	Exhibit
3.(i)	Certificate of Incorporation of the Registrant as Amended through June 3, 2019, incorporated by reference from the Registrant's Current Report on Form 8-K filed June 5, 2019, Exhibit 3.1
3.(ii)	By-laws of the Registrant, as amended, incorporated herein by reference from the Registrant’s Current Report on Form 8-K filed on November 24, 2009, Exhibit 3.(ii)
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
10.1	Employment Agreement between the Registrant and Thomas J. Murphy, President and Chief Executive Officer, effective February 1, 2020 incorporated herein by reference from the Registrant's Current Report on Form 8-K , filed February 3, 2020, Exhibit 10.1*
10.2	Employment Agreement between the Registrant and Edward J. Campanella, Senior Vice President, Treasurer and Chief Financial Officer, effective February 1, 2020 incorporated herein by reference from the Registrant's Current Report on Form 8-K, filed February 3, 2020, Exhibit 10.2*
10.3	Employment Agreement between the Registrant and David S. DeMarco, Senior Vice President and Chief Banking Officer, effective February 1, 2020 incorporated herein by reference from the Registrant's Current Report on Form 8-K , filed February 3, 2020, Exhibit 10.3*
10.4	Employment Agreement between the Registrant and David D. Kaiser, Senior Vice President, effective February 1, 2020 incorporated herein by reference from the Registrant's Current Report on Form 8-K , filed February 3, 2020, Exhibit 10.4*
10.5	Employment Agreement between the Registrant and Andrew J. Wise, Chief Operating Officer and Senior Vice President, effective February 3, 2020 incorporated herein by reference from the Registrant's Current Report on Form 8-K , filed February 3, 2020, Exhibit 10.5*
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.

# 64

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

May 7, 2020	/s/Thomas J. Murphy
Date	Thomas J. Murphy, President and
	Chief Executive Officer
May 7, 2020	/s/Edward J. Campanella
Date	Edward J. Campanella, Senior Vice President,
	Treasurer and Chief Financial Officer
	(Principal Financial Officer and
	Principal Accounting Officer)

# 65

EX-15

Exhibit 15

Report of Independent Registered Public Accounting Firm

May 7, 2020

The Stockholders and Board of Directors

Arrow Financial Corporation

Glens Falls, New York

Re: Registration Statement Forms S-3 (No. 333-219822 and 333-230360) and Forms S-8 (No. 333-151550, No. 333-188479, and No. 333-188480)

With respect to the subject registration statement, we acknowledge our awareness of the use therein of our report dated May 7, 2020 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:    May 7, 2020

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:May 7, 2020

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 March 31, 2020, 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: May 7, 2020

/s/ Thomas J. Murphy

Thomas J. Murphy

Chief Executive Officer

/s/ Edward J. Campanella

Edward J. Campanella

Chief Financial Officer

A signed original of this written statement required by Section 906 has been provided to Arrow Financial Corporation and will be retained by Arrow Financial Corporation and furnished to the Securities and Exchange Commission or its staff upon request.

XML

Loans Credit Quality Indicators (Details) - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019	Mar. 31, 2019
Financing Receivable, Credit Quality Indicator [Line Items]
Financing Receivable, after Allowance for Credit Loss
Satisfactory
Financing Receivable, Credit Quality Indicator [Line Items]
Financing Receivable, after Allowance for Credit Loss	637,461	$ 628,550	$ 591,134
Special Mention
Financing Receivable, Credit Quality Indicator [Line Items]
Financing Receivable, after Allowance for Credit Loss	283	295	2,401
Substandard
Financing Receivable, Credit Quality Indicator [Line Items]
Financing Receivable, after Allowance for Credit Loss	35,486	32,356	33,128
Doubtful
Financing Receivable, Credit Quality Indicator [Line Items]
Financing Receivable, after Allowance for Credit Loss	0	0	0
Performing
Financing Receivable, Credit Quality Indicator [Line Items]
Financing Receivable, after Allowance for Credit Loss	1,737,334	1,721,068	1,604,001
Nonperforming
Financing Receivable, Credit Quality Indicator [Line Items]
Financing Receivable, after Allowance for Credit Loss	3,629	3,851	4,544
Commercial | Satisfactory
Financing Receivable, Credit Quality Indicator [Line Items]
Financing Receivable, after Allowance for Credit Loss	140,218	144,283	125,918
Commercial | Special Mention
Financing Receivable, Credit Quality Indicator [Line Items]
Financing Receivable, after Allowance for Credit Loss	28	32	133
Commercial | Substandard
Financing Receivable, Credit Quality Indicator [Line Items]
Financing Receivable, after Allowance for Credit Loss	6,854	6,345	7,225
Commercial | Doubtful
Financing Receivable, Credit Quality Indicator [Line Items]
Financing Receivable, after Allowance for Credit Loss	0	0	0
Commercial Real Estate | Satisfactory
Financing Receivable, Credit Quality Indicator [Line Items]
Financing Receivable, after Allowance for Credit Loss	497,243	484,267	465,216
Commercial Real Estate | Special Mention
Financing Receivable, Credit Quality Indicator [Line Items]
Financing Receivable, after Allowance for Credit Loss	255	263	2,268
Commercial Real Estate | Substandard
Financing Receivable, Credit Quality Indicator [Line Items]
Financing Receivable, after Allowance for Credit Loss	28,632	26,011	25,903
Commercial Real Estate | Doubtful
Financing Receivable, Credit Quality Indicator [Line Items]
Financing Receivable, after Allowance for Credit Loss	0	0	0
Consumer | Performing
Financing Receivable, Credit Quality Indicator [Line Items]
Financing Receivable, after Allowance for Credit Loss	823,901	810,535	746,211
Consumer | Nonperforming
Financing Receivable, Credit Quality Indicator [Line Items]
Financing Receivable, after Allowance for Credit Loss	808	663	588
Residential | Performing
Financing Receivable, Credit Quality Indicator [Line Items]
Financing Receivable, after Allowance for Credit Loss	913,433	910,533	857,790
Residential | Nonperforming
Financing Receivable, Credit Quality Indicator [Line Items]
Financing Receivable, after Allowance for Credit Loss	$ 2,821	$ 3,188	$ 3,956

XML

Leases (Tables)

3 Months Ended

Mar. 31, 2020

Leases [Abstract]

Lease, Cost

The following includes quantitative data related to the Company's leases as of and for the three months ended March 31, 2020 and March 31, 2019:

		Three Months Ended
Finance Lease Amounts:	Classification	March 31, 2020			March 31, 2019
Right-of-use Assets	Premises and Equipment, Net	$	5,124		$	2,922
Lease Liabilities	Finance Leases	5,249			2,946
Operating Lease Amounts:
Right-of-use Assets	Other Assets	$	5,529		$	5,587
Lease Liabilities	Other Liabilities	5,602			5,639
Other Information:
Cash Paid For Amounts Included In The Measurement Of Lease Liabilities:
Operating Outgoing Cash Flows From Finance Leases		$	50		$	15
Operating Outgoing Cash Flows From Operating Leases		158			173
Financing Outgoing Cash Flows From Finance Leases		5			4
Right-of-use Assets Obtained In Exchange For New Finance Lease Liabilities		—			2,939
Right-of-use Assets Obtained In Exchange For New Operating Lease Liabilities		—			5,725
Weighted-average Remaining Lease Term—Finance Leases (Yrs.)		29.90			26.91
Weighted-average Remaining Lease Term—Operating Leases (Yrs.)		13.70			14.63
Weighted-average Discount Rate—Finance Leases %		3.75		%	3.82		%
Weighted-average Discount Rate—Operating Leases %		3.36		%	3.50		%

Lease cost information for the Company's leases is as follows:
	Three Months Ended
	March 31, 2020		March 31, 2019
Lease Cost:
Finance Lease Cost:
Amortization of Right-of-use assets	$	44	$	17
Interest on Lease Liabilities	50		15
Operating Lease Cost	207		173
Short-term Lease Cost	7		33
Variable Lease Cost	55		56
Total Lease Cost	$	363	$	294

Lessee, Operating Lease, Liability, Maturity

Future Lease Payments at March 31, 2020 are as follows:
	Operating Leases		Financing Leases
Twelve Months Ended:
3/31/2021	$	776	$	240
3/31/2022	640		243
3/31/2023	563		132
3/31/2024	548		243
3/31/2025	515		252
Thereafter	4,028		8,110
Total Undiscounted Cash Flows	$	7,070	$	9,220
Less: Net Present Value Adjustment	1,468		3,971
Lease Liability	$	5,602	$	5,249

Finance Lease, Liability, Maturity

Future Lease Payments at March 31, 2020 are as follows:
	Operating Leases		Financing Leases
Twelve Months Ended:
3/31/2021	$	776	$	240
3/31/2022	640		243
3/31/2023	563		132
3/31/2024	548		243
3/31/2025	515		252
Thereafter	4,028		8,110
Total Undiscounted Cash Flows	$	7,070	$	9,220
Less: Net Present Value Adjustment	1,468		3,971
Lease Liability	$	5,602	$	5,249

XML

Investment Securities - Unrealized Gains (Losses) (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Investments, Debt and Equity Securities [Abstract]
Net (Loss) Gain on Equity Securities	$ (374)	$ 76
Less: Net gain (loss) recognized during the reporting period on equity securities sold during the period	0	0
Unrealized net (loss) gain recognized during the reporting period on equity securities still held at the reporting date	$ (374)	$ 76

XML

Retirement Benefit Plans

3 Months Ended

Mar. 31, 2020

Defined Benefit Plan [Abstract]

Retirement Benefit Plans

RETIREMENT BENEFIT PLANS (Dollars in Thousands)

Arrow sponsors qualified and non-qualified defined benefit pension plans and other postretirement benefit plans for its employees. Arrow maintains a non-contributory pension plan, which covers substantially all employees.  Effective December 1, 2002, all active participants in the qualified defined benefit pension plan were given a one-time irrevocable election to continue participating in the traditional plan design, for which benefits were based on years of service and the participant’s final compensation (as defined), or to begin participating in the new cash balance plan design.  All employees who participate in the plan after December 1, 2002 automatically participate in the cash balance plan design.  The interest credits under the cash balance plan are based on the 30-year U.S. Treasury rate in effect for November of the prior year with a minimum interest credit of 3%.  The service credits under the cash balance plan are equal to 6.0% of eligible salaries for employees who become participants on or after January 1, 2003.  For employees in the plan prior to January 1, 2003, the service credits are scaled based on the age of the participant, and range from 6.0% to 12.0%.  The funding policy is to contribute up to the maximum amount that can be deducted for federal income tax purposes and to make all payments required under The Employee Retirement Income Security Act (ERISA).  Arrow also maintains a supplemental non-qualified unfunded retirement plan to provide eligible employees of Arrow and its subsidiaries with benefits in excess of qualified plan limits imposed by federal tax law.

Arrow has multiple non-pension postretirement benefit plans.  The health care, dental and life insurance plans are contributory, with participants’ contributions adjusted annually.  Arrow’s policy is to fund the cost of postretirement benefits based on the current cost of the underlying policies.  However, the health care plan provision for automatic increases of Company contributions each year is based on the increase in inflation and is limited to a maximum of 5%.  

As of December 31, 2019, Arrow updated its mortality assumption to the Pri-2012 mortality tables for employees, healthy annuitants and contingent survivors, adjusted for mortality improvements with the Scale MP-2019 mortality improvement scale on a generational basis to reflect newly published mortality tables. The Pension Plan uses the sex-distinct amount-weighted tables, the Select Executive Retirement Plan uses the sex-distinct white collar amount-weighted tables, and the Postretirement Benefit Plan uses the sex-distinct headcount-weighted tables. The change in mortality tables resulted in a decrease in liabilities for the Employee's Pension Plan, the Select Executive Retirement Plan and the Postretirement Benefit Plan.

The mortality table used in determining the present value of a lump sum payment/annuitizing cash balance accounts was changed to the applicable mortality table for the determination of present values under Internal Revenue Code (IRC) Section 417(e)(3)(B). This table is currently a 50/50 blend of male and female rates from the 2020 sex distinct optional combined mortality tables, as prescribed under IRC Section 430. The change in mortality table was made to reflect the continued improvement in mortality rates and resulted in an increase in liabilities for the Employee's Pension Plan and the Select Executive Retirement Plan.

The interest rates used in determining the present value of a lump sum payment/annuitizing cash balance accounts were changed to the segment rates in effect for the January 1, 2020 plan year (2.04%, 3.09%, 3.68%) as of December 31, 2019. This change resulted in a decrease in liability for the Employees' Pension Plan and the Select Executive Retirement Plan.

The following tables provide the components of net periodic benefit costs for the three-month periods ended March 31, 2020 and 2019.

	Employees'			Select Executive		Postretirement
	Pension			Retirement		Benefit
	Plan			Plan		Plans
Net Periodic Benefit Cost
For the Three Months Ended March 31, 2020
Service Cost 1	$	430		$	103	$	33
Interest Cost 2	417			54		78
Expected Return on Plan Assets 2	(904		)	—		—
Amortization of Prior Service Cost 2	16			11		27
Amortization of Net Loss 2	1			33		2
Net Periodic Cost	$	(40	)	$	201	$	140
Plan Contributions During the Period	$	—		$	117	$	78
For the Three Months Ended March 31, 2019:
Service Cost 1	$	399		$	97	$	30
Interest Cost 2	397			52		89
Expected Return on Plan Assets 2	(770		)	—		—
Amortization of Prior Service Cost 2	17			14		25
Amortization of Net Loss 2	153			27		(17		)
Net Periodic (Benefit) Cost	$	196		$	190	$	127
Plan Contributions During the Period	$	—		$	116	$	37

Footnotes:

1. Included in Salaries and Employee Benefits on the Consolidated Statements of Income

2. Included in Other Operating Expense on the Consolidated Statements of Income

A contribution to the qualified pension plan in 2020 was not required, and currently, additional contributions in 2020 are not expected. Arrow makes contributions to its other post-retirement benefit plans in an amount equal to benefit payments for the year.

XML

Loans

3 Months Ended

Mar. 31, 2020

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 March 31, 2020, December 31, 2019 and March 31, 2019 and an analysis of the recorded investment in loans that are past due at these dates.  Generally, Arrow considers a loan past due 30 or more days when the borrower is two payments past due. Loans held-for-sale of $1,905, $215 and $201 as of March 31, 2020, December 31, 2019 and March 31, 2019, respectively, are included in the residential real estate balances for current loans.

Schedule of Past Due Loans by Loan Category
			Commercial
	Commercial		Real Estate		Consumer		Residential		Total
March 31, 2020
Loans Past Due 30-59 Days	$	173	$	461	$	5,636	$	1,630	$	7,900
Loans Past Due 60-89 Days	70		110		1,451		212		1,843
Loans Past Due 90 or more Days	8		911		549		1,525		2,993
Total Loans Past Due	251		1,482		7,636		3,367		12,736
Current Loans	146,849		524,648		817,073		912,887		2,401,457
Total Loans	$	147,100	$	526,130	$	824,709	$	916,254	$	2,414,193
Loans 90 or More Days Past Due   and Still Accruing Interest	$	5	$	238	$	93	$	101	$	437
Nonaccrual Loans	63		1,445		715		2,720		4,943
December 31, 2019
Loans Past Due 30-59 Days	$	150	$	—	$	5,670	$	152	$	5,972
Loans Past Due 60-89 Days	42		266		2,700		2,027		5,035
Loans Past Due 90 or more Days	21		326		445		1,807		2,599
Total Loans Past Due	213		592		8,815		3,986		13,606
Current Loans	150,447		509,949		802,383		909,735		2,372,514
Total Loans	$	150,660	$	510,541	$	811,198	$	913,721	$	2,386,120
Loans 90 or More Days Past Due   and Still Accruing Interest	$	—	$	—	$	—	$	253	$	253
Nonaccrual Loans	81		326		663		2,935		4,005
March 31, 2019
Loans Past Due 30-59 Days	$	168	$	208	$	4,758	$	1,345	$	6,479
Loans Past Due 60-89 Days	—		—		1,387		207		1,594
Loans Past Due 90 or more Days	17		108		369		1,610		2,104
Total Loans Past Due	185		316		6,514		3,162		10,177
Current Loans	133,091		493,071		740,285		858,584		2,225,031
Total Loans	$	133,276	$	493,387	$	746,799	$	861,746	$	2,235,208
Loans 90 or More Days Past Due   and Still Accruing Interest	$	—	$	—	$	—	$	64	$	64
Nonaccrual Loans	415		248		588		3,892		5,143

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. Generally, these loans carry a higher risk than commercial real estate loans, due primarily 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 to support the borrowing, as permitted by applicable law.

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 often made to finance the purchases of real property which generally consists of real estate with completed structures. These commercial real estate loans are typically 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. Many projects will ultimately be used by the borrowers' businesses, while others are developed for resale. These real estate loans are also typically secured by first liens on the real estate, which may include apartments, commercial structures, housing businesses, 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 - 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 indirect consumer 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. The Company also 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.

Residential - Residential real estate loans consist primarily of loans secured by first or second mortgages on primary residences. The Company originates fixed-rate and adjustable-rate one-to-four-family residential real estate loans for construction, the purchase of real estate 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 80% 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 variable rate home equity lines of credit, to consumers to finance home improvements, debt consolidation, education and other uses.  The Company's 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			Total
Roll-forward of the Allowance for Loan Losses for the Quarterly Periods:
December 31, 2019	$	1,386		$	5,830		$	9,408		$	4,563		$	21,187
Charge-offs	(14		)	—			(467		)	—			(481		)
Recoveries	—			—			159			—			159
Provision	267			1,235			904			366			2,772
March 31, 2020	$	1,639		$	7,065		$	10,004		$	4,929		$	23,637
December 31, 2018	$	1,218		$	5,644		$	8,882		$	4,452		$	20,196
Charge-offs	(1		)	(29		)	(418		)	(14		)	(462		)
Recoveries	—			—			167			—			167
Provision	33			(26		)	778			(313		)	472
March 31, 2019	$	1,250		$	5,589		$	9,409		$	4,125		$	20,373

Allowance for Loan Losses
			Commercial
	Commercial		Real Estate		Consumer		Residential		Total
March 31, 2020
Allowance for loan losses - Loans Individually Evaluated for Impairment	$	4	$	—	$	—	$	37	$	41
Allowance for loan losses - Loans Collectively Evaluated for Impairment	1,635		7,065		10,004		4,892		23,596
Ending Loan Balance - Individually Evaluated for Impairment	34		1,137		111		953		2,235
Ending Loan Balance - Collectively Evaluated for Impairment	$	147,066	$	524,993	$	824,598	$	915,301	$	2,411,958
December 31, 2019
Allowance for loan losses - Loans Individually Evaluated for Impairment	$	5	$	—	$	—	$	42	$	47
Allowance for creditlosses - Loans Collectively Evaluated for Impairment	1,381		5,830		9,408		4,521		21,140
Ending Loan Balance - Individually Evaluated for Impairment	35		—		107		959		1,101
Ending Loan Balance - Collectively Evaluated for Impairment	$	150,625	$	510,541	$	811,091	$	912,762	$	2,385,019
March 31, 2019
Allowance for loan losses - Loans Individually Evaluated for Impairment	$	—	$	—	$	—	$	—	$	—
Allowance for credit losses - Loans Collectively Evaluated for Impairment	1,250		5,589		9,409		4,125		20,373
Ending Loan Balance - Individually Evaluated for Impairment	40		387		101		2,417		2,945
Ending Loan Balance - Collectively Evaluated for Impairment	$	133,236	$	493,000	$	746,698	$	859,329	$	2,232,263

Through the provision for loan losses, an allowance for loan losses is maintained that reflects the best estimate of the incurred 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.

Our 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, our independent internal loan review department performs periodic reviews of the credit quality indicators on individual loans in the commercial loan portfolio.

The Company uses a two-step process to determine the provision for loan losses and the amount of the allowance for loan losses. An evaluation of impaired loans is performed on a quarterly basis. Impaired loans are generally nonaccrual loans over $250 thousand and all troubled debt restructured loans. Specific reserves on individually identified impaired loans that are not collateral dependent are measured based on the present value of expected future cash flows discounted at the original effective interest rate of each loan. For loans that are collateral dependent, impairment is measured based on the fair value of the collateral less estimated selling costs, and such impaired amounts are generally charged off. In general, Arrow's impaired loans are collateral dependent impaired loans that have limited exposure or require limited specific reserves because of the amount of collateral support with respect to these loans. Interest payments on impaired loans are typically applied to principal unless collectability of the principal amount is reasonably assured. In these cases, interest is recognized on a cash basis.

The remainder of the portfolio is evaluated on a pooled basis, as described below. For each homogeneous loan pool, a total loss factor is estimated based on the historical net loss rates adjusted for applicable qualitative factors. The total loss factors assigned to each loan category are updated on a quarterly basis. For the commercial, commercial construction and commercial real estate categories, the loan categories are further segregated by credit risk profile (pools of loans graded pass, special mention and accruing substandard). Additional description of the credit risk classifications is detailed in the Credit Quality Indicators section of this note.

The historical net loss rate is determined for each loan category using a trailing three-year net charge-off average. 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, historical net loss factors are considered and adjusted for qualitative factors that impact the incurred 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

Loan Credit Quality Indicators

The following table presents the credit quality indicators by loan category at March 31, 2020, December 31, 2019 and March 31, 2019:

Loan Credit Quality Indicators
			Commercial
	Commercial		Real Estate		Consumer		Residential		Total
March 31, 2020
Credit Risk Profile by Creditworthiness Category:
Satisfactory	$	140,218	$	497,243					$	637,461
Special Mention	28		255						283
Substandard	6,854		28,632						35,486
Doubtful	—		—						—
Credit Risk Profile Based on Payment Activity:
Performing					$	823,901	$	913,433	$	1,737,334
Nonperforming					808		2,821		3,629
December 31, 2019
Credit Risk Profile by Creditworthiness Category:
Satisfactory	$	144,283	$	484,267					$	628,550
Special Mention	32		263						295
Substandard	6,345		26,011						32,356
Doubtful	—		—						—
Credit Risk Profile Based on Payment Activity:
Performing					$	810,535	$	910,533	$	1,721,068
Nonperforming					663		3,188		3,851
March 31, 2019
Credit Risk Profile by Creditworthiness Category:
Satisfactory	$	125,918	$	465,216					$	591,134
Special Mention	133		2,268						2,401
Substandard	7,225		25,903						33,128
Doubtful	—		—						—
Credit Risk Profile Based on Payment Activity:
Performing					$	746,211	$	857,790	$	1,604,001
Nonperforming					588		3,956		4,544

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.

For the allowance calculation, an internally developed system of five credit quality indicators is used 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 credit quality indicator 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 Company 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 (e.g. 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 with collateral of such little value that their continuance as bankable assets 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.  

Commercial loans are generally evaluated on an annual basis depending on the size and complexity of the loan relationship, unless the credit related 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 in assessing the level of incurred risk of loss in our commercial related loan portfolios.

Impaired Loans

The following table presents information on impaired loans as of March 31, 2020, December 31, 2019 and March 31, 2019 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
March 31, 2020
Recorded Investment:
With No Related Allowance	$	—	$	1,137	$	112	$	697	$	1,946
With a Related Allowance	33		—		—		256		289
Unpaid Principal Balance:
With No Related Allowance	—		1,137		111		697		1,945
With a Related Allowance	34		—		—		256		290
December 31, 2019
Recorded Investment:
With No Related Allowance	$	—	$	—	$	108	$	699	$	807
With a Related Allowance	34		—		—		260		294
Unpaid Principal Balance:
With No Related Allowance	—		—		107		699		806
With a Related Allowance	35		—		—		260		295
March 31, 2019
Recorded Investment:
With No Related Allowance	$	38	$	389	$	101	$	2,417	$	2,945
With a Related Allowance	—		—		—		—		—
Unpaid Principal Balance:
With No Related Allowance	424		2		101		2,416		$	2,943
With a Related Allowance	—		—		—		—		—
For the Quarter Ended:
March 31, 2020
Average Recorded Balance:
With No Related Allowance	$	—	$	569	$	110	$	698	$	1,377
With a Related Allowance	34		—		—		258		292
Interest Income Recognized:
With No Related Allowance	—		10		—		—		10
With a Related Allowance	—		—		—		—		—
Cash Basis Income:
With No Related Allowance	—		—		—		—		—
With a Related Allowance	—		—		—		—		—
March 31, 2019
Average Recorded Balance:
With No Related Allowance	$	234	$	591	$	101	$	2,011	$	2,937
With a Related Allowance	—		—		—		147		147
Interest Income Recognized:
With No Related Allowance	—		—		—		—		—
With a Related Allowance	—		—		—		—		—
Cash Basis Income:
With No Related Allowance	—		—		—		—		—
With a Related Allowance	—		—		—		—		—

At March 31, 2020, December 31, 2019 and March 31, 2019, 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 interest income was recognized 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.

Loans Modified in Trouble Debt Restructurings During the Period
			Commercial
	Commercial		Real Estate		Consumer		Residential		Total
For the Quarter Ended:
March 31, 2020
Number of Loans	—		—		1		—		1
Pre-Modification Outstanding Recorded Investment	$	—	$	—	$	16	$	—	$	16
Post-Modification Outstanding Recorded Investment	—		—		16		—		16
Subsequent Default, Number of Contracts	—		—		—		—		—
Subsequent Default, Recorded Investment	—		—		—		—		—
March 31, 2019
Number of Loans	—		—		1		—		1
Pre-Modification Outstanding Recorded Investment	$	—	$	—	$	13	$	—	$	13
Post-Modification Outstanding Recorded Investment	—		—		13		—		13
Subsequent Default, Number of Contracts	—		—		—		—		—
Subsequent Default, Recorded Investment	—		—		—		—		—

In general, prior to the COVID-19 pandemic, loans requiring modification are restructured to accommodate the projected cash-flows of the borrower. Such modifications may involve a reduction of the interest rate, a significant deferral of payments or forgiveness of a portion of the outstanding principal balance. As indicated in the table above, no loans modified during the preceding twelve months subsequently defaulted as of March 31, 2020. In accordance with the Coronavirus Aid, Relief, and Economic Security (CARES) Act, if a short-term loan modification (e.g. six months) is made for a borrower as the result of the COVID-19 pandemic, and who was current on contractual payments as of December 31, 2019, this modification is not considered a troubled debt restructuring (TDR).

XML

Leases - Quantitative Lease Data (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019	Dec. 31, 2019
Finance Lease Amounts:
Right-of-use Assets	$ 5,124	$ 2,922
Lease Liabilities	5,249	2,946	$ 5,254
Operating Lease Amounts:
Right-of-use Assets	5,529	5,587
Lease Liabilities	5,602	5,639
Cash Paid For Amounts Included In The Measurement Of Lease Liabilities:
Operating Outgoing Cash Flows From Finance Leases	50	15
Operating Outgoing Cash Flows From Operating Leases	158	173
Financing Outgoing Cash Flows From Finance Leases	5	4
Right-of-use Assets Obtained In Exchange For New Finance Lease Liabilities	0	2,939
Right-of-use Assets Obtained In Exchange For New Operating Lease Liabilities	$ 0	$ 5,725
Weighted-average Remaining Lease Term—Finance Leases (Yrs.)	29 years 10 months 24 days	26 years 10 months 28 days
Weighted-average Remaining Lease Term—Operating Leases (Yrs.)	13 years 8 months 12 days	14 years 7 months 17 days
Weighted-average Discount Rate—Finance Leases %	3.75%	3.82%
Weighted-average Discount Rate—Operating Leases %	3.36%	3.50%
Finance Lease Cost:
Amortization of Right-of-use assets	$ 44	$ 17
Interest on Lease Liabilities	50	15
Operating Lease Cost	207	173
Short-term Lease Cost	7	33
Variable Lease Cost	55	56
Total Lease Cost	$ 363	$ 294

XML

Earnings Per Common Share (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands		3 Months Ended
		Mar. 31, 2020		Mar. 31, 2019		Sep. 27, 2019
Earnings Per Share [Abstract]
Stock dividend, percent						3.00%
Net Income		$ 8,127		$ 8,734
Weighted Average Shares - Basic (in shares)		14,996	[1]	14,903	[2]
Earnings Per Share - Basic (in dollars per share)	[1]	$ 0.54		$ 0.59
Dilutive Average Shares Attributable to Stock Options (in shares)		30		53
Weighted Average Shares - Diluted (in shares)	[2]	15,026		14,956
Earnings Per Share - Diluted (in dollars per share)	[1]	$ 0.54		$ 0.58

[1] Cash dividends paid per share have been adjusted for the September 27, 2019 3% stock dividend.

[2] 2019 Share and Per Share Amounts have been restated for the September 27, 2019 3% stock dividend.

XML

Retirement Benefit Plans (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019	Dec. 31, 2019
Net Periodic Benefit Cost [Line Items]
Employer matching contribution, percentage	5.00%
Employees' Pension Plan
Net Periodic Benefit Cost [Line Items]
Assumptions used calculating benefit obligation, interest rate to annuitize cash balance account			2.04%
Service Cost	$ 430	$ 399
Interest Cost	417	397
Expected Return on Plan Assets	(904)	(770)
Amortization of Prior Service (Credit) Cost	16	17
Amortization of Net Loss	1	153
Net Periodic Cost	(40)	196
Plan Contributions During the Period	0	0
Select Executive Retirement Plan
Net Periodic Benefit Cost [Line Items]
Assumptions used calculating benefit obligation, interest rate to annuitize cash balance account			3.09%
Service Cost	103	97
Interest Cost	54	52
Expected Return on Plan Assets	0	0
Amortization of Prior Service (Credit) Cost	11	14
Amortization of Net Loss	33	27
Net Periodic Cost	201	190
Plan Contributions During the Period	117	116
Post-Retirement Benefit Plans
Net Periodic Benefit Cost [Line Items]
Assumptions used calculating benefit obligation, interest rate to annuitize cash balance account			3.68%
Service Cost	33	30
Interest Cost	78	89
Expected Return on Plan Assets	0	0
Amortization of Prior Service (Credit) Cost	27	25
Amortization of Net Loss	2	(17)
Net Periodic Cost	140	127
Plan Contributions During the Period	$ 78	$ 37
On or Subsequent to January 1, 2003
Net Periodic Benefit Cost [Line Items]
Service credits, percent of eligible salaries	6.00%
Minimum | Prior to January 1, 2003
Net Periodic Benefit Cost [Line Items]
Service credits, percent of eligible salaries	6.00%
Maximum | Prior to January 1, 2003
Net Periodic Benefit Cost [Line Items]
Service credits, percent of eligible salaries	12.00%

XML

Loans Modified in Trouble Debt Restructurings (Details) - Entity Loan Modification Program - Payment Deferral $ in Thousands	3 Months Ended
	Mar. 31, 2020 USD ($) contract	Mar. 31, 2019 USD ($) contract
Financing Receivable, Troubled Debt Restructuring [Line Items]
Number of Loans | contract	1	1
Pre-Modification Outstanding Recorded Investment	$ 16	$ 13
Post-Modification Outstanding Recorded Investment	$ 16	$ 13
Subsequent Default, Number of Contracts | contract	0	0
Subsequent Default, Recorded Investment	$ 0	$ 0
Commercial
Financing Receivable, Troubled Debt Restructuring [Line Items]
Number of Loans | contract	0	0
Pre-Modification Outstanding Recorded Investment	$ 0	$ 0
Post-Modification Outstanding Recorded Investment	$ 0	$ 0
Subsequent Default, Number of Contracts | contract	0	0
Subsequent Default, Recorded Investment	$ 0	$ 0
Commercial Real Estate
Financing Receivable, Troubled Debt Restructuring [Line Items]
Number of Loans | contract	0	0
Pre-Modification Outstanding Recorded Investment	$ 0	$ 0
Post-Modification Outstanding Recorded Investment	$ 0	$ 0
Subsequent Default, Number of Contracts | contract	0	0
Subsequent Default, Recorded Investment	$ 0	$ 0
Consumer
Financing Receivable, Troubled Debt Restructuring [Line Items]
Number of Loans | contract	1	1
Pre-Modification Outstanding Recorded Investment	$ 16	$ 13
Post-Modification Outstanding Recorded Investment	$ 16	$ 13
Subsequent Default, Number of Contracts | contract	0	0
Subsequent Default, Recorded Investment	$ 0	$ 0
Residential
Financing Receivable, Troubled Debt Restructuring [Line Items]
Number of Loans | contract	0	0
Pre-Modification Outstanding Recorded Investment	$ 0	$ 0
Post-Modification Outstanding Recorded Investment	$ 0	$ 0
Subsequent Default, Number of Contracts | contract	0	0
Subsequent Default, Recorded Investment	$ 0	$ 0

XML

Comprehensive Income Reclassification out of Accumulated Other Comprehensive Income (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Reclassification out of Accumulated Other Comprehensive Income [Line Items]
Salaries and Employee Benefits	$ 10,383	$ 9,319
INCOME BEFORE PROVISION FOR INCOME TAXES	10,174	10,884
Provision for income taxes	(2,047)	(2,150)
Net Income	8,127	8,734
Reclassification out of Accumulated Other Comprehensive Income
Reclassification out of Accumulated Other Comprehensive Income [Line Items]
Net Income	(66)	(163)
Reclassification out of Accumulated Other Comprehensive Income | Accretion of Net Retirement Plan Prior Service (Cost) Credit
Reclassification out of Accumulated Other Comprehensive Income [Line Items]
Salaries and Employee Benefits	(54)	(56)
Reclassification out of Accumulated Other Comprehensive Income | Amortization of Net Retirement Plan Actuarial Gain (Loss)
Reclassification out of Accumulated Other Comprehensive Income [Line Items]
Salaries and Employee Benefits	(36)	(163)
Reclassification out of Accumulated Other Comprehensive Income | Accumulated Defined Benefit Plans Adjustment
Reclassification out of Accumulated Other Comprehensive Income [Line Items]
INCOME BEFORE PROVISION FOR INCOME TAXES	(90)	(219)
Provision for income taxes	24	56
Net Income	$ (66)	$ (163)

XML

Loans (Tables)

3 Months Ended

Mar. 31, 2020

Loans and Leases Receivable Disclosure [Abstract]

Past Due Financing Receivables

The following table presents loan balances outstanding as of March 31, 2020, December 31, 2019 and March 31, 2019 and an analysis of the recorded investment in loans that are past due at these dates.  Generally, Arrow considers a loan past due 30 or more days when the borrower is two payments past due. Loans held-for-sale of $1,905, $215 and $201 as of March 31, 2020, December 31, 2019 and March 31, 2019, respectively, are included in the residential real estate balances for current loans.

Schedule of Past Due Loans by Loan Category
			Commercial
	Commercial		Real Estate		Consumer		Residential		Total
March 31, 2020
Loans Past Due 30-59 Days	$	173	$	461	$	5,636	$	1,630	$	7,900
Loans Past Due 60-89 Days	70		110		1,451		212		1,843
Loans Past Due 90 or more Days	8		911		549		1,525		2,993
Total Loans Past Due	251		1,482		7,636		3,367		12,736
Current Loans	146,849		524,648		817,073		912,887		2,401,457
Total Loans	$	147,100	$	526,130	$	824,709	$	916,254	$	2,414,193
Loans 90 or More Days Past Due   and Still Accruing Interest	$	5	$	238	$	93	$	101	$	437
Nonaccrual Loans	63		1,445		715		2,720		4,943
December 31, 2019
Loans Past Due 30-59 Days	$	150	$	—	$	5,670	$	152	$	5,972
Loans Past Due 60-89 Days	42		266		2,700		2,027		5,035
Loans Past Due 90 or more Days	21		326		445		1,807		2,599
Total Loans Past Due	213		592		8,815		3,986		13,606
Current Loans	150,447		509,949		802,383		909,735		2,372,514
Total Loans	$	150,660	$	510,541	$	811,198	$	913,721	$	2,386,120
Loans 90 or More Days Past Due   and Still Accruing Interest	$	—	$	—	$	—	$	253	$	253
Nonaccrual Loans	81		326		663		2,935		4,005
March 31, 2019
Loans Past Due 30-59 Days	$	168	$	208	$	4,758	$	1,345	$	6,479
Loans Past Due 60-89 Days	—		—		1,387		207		1,594
Loans Past Due 90 or more Days	17		108		369		1,610		2,104
Total Loans Past Due	185		316		6,514		3,162		10,177
Current Loans	133,091		493,071		740,285		858,584		2,225,031
Total Loans	$	133,276	$	493,387	$	746,799	$	861,746	$	2,235,208
Loans 90 or More Days Past Due   and Still Accruing Interest	$	—	$	—	$	—	$	64	$	64
Nonaccrual Loans	415		248		588		3,892		5,143

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			Total
Roll-forward of the Allowance for Loan Losses for the Quarterly Periods:
December 31, 2019	$	1,386		$	5,830		$	9,408		$	4,563		$	21,187
Charge-offs	(14		)	—			(467		)	—			(481		)
Recoveries	—			—			159			—			159
Provision	267			1,235			904			366			2,772
March 31, 2020	$	1,639		$	7,065		$	10,004		$	4,929		$	23,637
December 31, 2018	$	1,218		$	5,644		$	8,882		$	4,452		$	20,196
Charge-offs	(1		)	(29		)	(418		)	(14		)	(462		)
Recoveries	—			—			167			—			167
Provision	33			(26		)	778			(313		)	472
March 31, 2019	$	1,250		$	5,589		$	9,409		$	4,125		$	20,373

Allowance for Loan Losses
			Commercial
	Commercial		Real Estate		Consumer		Residential		Total
March 31, 2020
Allowance for loan losses - Loans Individually Evaluated for Impairment	$	4	$	—	$	—	$	37	$	41
Allowance for loan losses - Loans Collectively Evaluated for Impairment	1,635		7,065		10,004		4,892		23,596
Ending Loan Balance - Individually Evaluated for Impairment	34		1,137		111		953		2,235
Ending Loan Balance - Collectively Evaluated for Impairment	$	147,066	$	524,993	$	824,598	$	915,301	$	2,411,958
December 31, 2019
Allowance for loan losses - Loans Individually Evaluated for Impairment	$	5	$	—	$	—	$	42	$	47
Allowance for creditlosses - Loans Collectively Evaluated for Impairment	1,381		5,830		9,408		4,521		21,140
Ending Loan Balance - Individually Evaluated for Impairment	35		—		107		959		1,101
Ending Loan Balance - Collectively Evaluated for Impairment	$	150,625	$	510,541	$	811,091	$	912,762	$	2,385,019
March 31, 2019
Allowance for loan losses - Loans Individually Evaluated for Impairment	$	—	$	—	$	—	$	—	$	—
Allowance for credit losses - Loans Collectively Evaluated for Impairment	1,250		5,589		9,409		4,125		20,373
Ending Loan Balance - Individually Evaluated for Impairment	40		387		101		2,417		2,945
Ending Loan Balance - Collectively Evaluated for Impairment	$	133,236	$	493,000	$	746,698	$	859,329	$	2,232,263

Financing Receivable Credit Quality Indicators

The following table presents the credit quality indicators by loan category at March 31, 2020, December 31, 2019 and March 31, 2019:

Loan Credit Quality Indicators
			Commercial
	Commercial		Real Estate		Consumer		Residential		Total
March 31, 2020
Credit Risk Profile by Creditworthiness Category:
Satisfactory	$	140,218	$	497,243					$	637,461
Special Mention	28		255						283
Substandard	6,854		28,632						35,486
Doubtful	—		—						—
Credit Risk Profile Based on Payment Activity:
Performing					$	823,901	$	913,433	$	1,737,334
Nonperforming					808		2,821		3,629
December 31, 2019
Credit Risk Profile by Creditworthiness Category:
Satisfactory	$	144,283	$	484,267					$	628,550
Special Mention	32		263						295
Substandard	6,345		26,011						32,356
Doubtful	—		—						—
Credit Risk Profile Based on Payment Activity:
Performing					$	810,535	$	910,533	$	1,721,068
Nonperforming					663		3,188		3,851
March 31, 2019
Credit Risk Profile by Creditworthiness Category:
Satisfactory	$	125,918	$	465,216					$	591,134
Special Mention	133		2,268						2,401
Substandard	7,225		25,903						33,128
Doubtful	—		—						—
Credit Risk Profile Based on Payment Activity:
Performing					$	746,211	$	857,790	$	1,604,001
Nonperforming					588		3,956		4,544

Impaired Financing Receivables

The following table presents information on impaired loans as of March 31, 2020, December 31, 2019 and March 31, 2019 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
March 31, 2020
Recorded Investment:
With No Related Allowance	$	—	$	1,137	$	112	$	697	$	1,946
With a Related Allowance	33		—		—		256		289
Unpaid Principal Balance:
With No Related Allowance	—		1,137		111		697		1,945
With a Related Allowance	34		—		—		256		290
December 31, 2019
Recorded Investment:
With No Related Allowance	$	—	$	—	$	108	$	699	$	807
With a Related Allowance	34		—		—		260		294
Unpaid Principal Balance:
With No Related Allowance	—		—		107		699		806
With a Related Allowance	35		—		—		260		295
March 31, 2019
Recorded Investment:
With No Related Allowance	$	38	$	389	$	101	$	2,417	$	2,945
With a Related Allowance	—		—		—		—		—
Unpaid Principal Balance:
With No Related Allowance	424		2		101		2,416		$	2,943
With a Related Allowance	—		—		—		—		—
For the Quarter Ended:
March 31, 2020
Average Recorded Balance:
With No Related Allowance	$	—	$	569	$	110	$	698	$	1,377
With a Related Allowance	34		—		—		258		292
Interest Income Recognized:
With No Related Allowance	—		10		—		—		10
With a Related Allowance	—		—		—		—		—
Cash Basis Income:
With No Related Allowance	—		—		—		—		—
With a Related Allowance	—		—		—		—		—
March 31, 2019
Average Recorded Balance:
With No Related Allowance	$	234	$	591	$	101	$	2,011	$	2,937
With a Related Allowance	—		—		—		147		147
Interest Income Recognized:
With No Related Allowance	—		—		—		—		—
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.

Loans Modified in Trouble Debt Restructurings During the Period
			Commercial
	Commercial		Real Estate		Consumer		Residential		Total
For the Quarter Ended:
March 31, 2020
Number of Loans	—		—		1		—		1
Pre-Modification Outstanding Recorded Investment	$	—	$	—	$	16	$	—	$	16
Post-Modification Outstanding Recorded Investment	—		—		16		—		16
Subsequent Default, Number of Contracts	—		—		—		—		—
Subsequent Default, Recorded Investment	—		—		—		—		—
March 31, 2019
Number of Loans	—		—		1		—		1
Pre-Modification Outstanding Recorded Investment	$	—	$	—	$	13	$	—	$	13
Post-Modification Outstanding Recorded Investment	—		—		13		—		13
Subsequent Default, Number of Contracts	—		—		—		—		—
Subsequent Default, Recorded Investment	—		—		—		—		—

XML

Derivative Instruments and Hedging Activities

3 Months Ended

Mar. 31, 2020

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Instruments and Hedging Activities

DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES (In Thousands)

Arrow is exposed to certain risks arising from both its business operations and economic conditions. Arrow principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Bank manages economic risks, including interest rate, primarily by managing the amount, sources and duration of its assets and liabilities and through the use of derivative instruments. Specifically, the Bank enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. Arrow's derivative financial instruments are used to manage differences in the amount, timing and duration of the Bank’s known or expected cash receipts and its known or expected cash payments principally related to certain fixed rate borrowings. Arrow also has interest rate derivatives that result from a service provided to certain qualifying customers and, therefore, are not used to manage interest rate risk in the Company’s assets or liabilities. The Company manages a matched book with respect to its derivative instruments in order to minimize its net risk exposure resulting from such transactions.

Derivatives Not Designated as Hedging Instruments

Arrow enters into interest rate swap agreements with its commercial customers to provide them with a long-term fixed rate, while simultaneously Arrow entered into offsetting interest rate swap agreements with a counterparty to swap the fixed rate to a variable rate to manage interest rate exposure.

These interest rate swap agreements are not designated as a hedge for accounting purposes. As the interest rate swap agreements have substantially equivalent and offsetting terms, they do not present any material exposure to the Arrow's consolidated statements of income. The Bank records its interest rate swap agreements at fair value and is presented on a gross basis within other assets and other liabilities on the consolidated balance sheets. Changes in the fair value of assets and liabilities arising from these derivatives are included, net, in other income in the consolidated statement of income.

The following table depicts the fair value adjustment recorded related to the notional amount of derivatives outstanding as well as the notional amount of the interest rate swap agreements.

Derivatives Not Designated as Hedging Instruments - Interest Rate Swap Agreements
	March 31, 2020		December 31, 2019		March 31, 2019
Fair value adjustment included in other assets	$	5,191	$	69	$	—
Fair value adjustment included in other liabilities	5,191		69		—
Notional amount	121,559		44,531		—

Derivatives Designated as Hedging Instruments

Arrow has entered into interest rate swaps to synthetically fix the variable rate interest payments associated with $20 million in outstanding subordinated trust securities. These agreements are designated as cash flow hedges.

For derivatives designated and that qualify as cash flow hedges of interest rate risk, the gain or loss on the derivative is recorded in AOCI and subsequently reclassified into interest expense in the same period during which the hedge transaction affects earnings. Amounts reported in AOCI related to derivatives will be reclassified to interest expense as interest payments are made on the Arrow's Junior Subordinated Obligations Issued to Unconsolidated Subsidiary Trusts borrowings.

The following table indicates the effect of cash flow hedge accounting on AOCI and on the unaudited interim consolidated statement of income.

Derivatives Designated as Hedging Instruments - Cash Flow Hedge Agreements
	March 31, 2020			December 31, 2019		March 31, 2019
Amount of loss recognized in AOCI	$	(294	)	$	—	$	—
Amount of gain reclassified from AOCI interest expense	—			—		—

XML

Retirement Benefit Plans (Tables)

3 Months Ended

Mar. 31, 2020

Defined Benefit Plan [Abstract]

Schedule of Defined Benefit Plans Disclosures

The following tables provide the components of net periodic benefit costs for the three-month periods ended March 31, 2020 and 2019.

	Employees'			Select Executive		Postretirement
	Pension			Retirement		Benefit
	Plan			Plan		Plans
Net Periodic Benefit Cost
For the Three Months Ended March 31, 2020
Service Cost 1	$	430		$	103	$	33
Interest Cost 2	417			54		78
Expected Return on Plan Assets 2	(904		)	—		—
Amortization of Prior Service Cost 2	16			11		27
Amortization of Net Loss 2	1			33		2
Net Periodic Cost	$	(40	)	$	201	$	140
Plan Contributions During the Period	$	—		$	117	$	78
For the Three Months Ended March 31, 2019:
Service Cost 1	$	399		$	97	$	30
Interest Cost 2	397			52		89
Expected Return on Plan Assets 2	(770		)	—		—
Amortization of Prior Service Cost 2	17			14		25
Amortization of Net Loss 2	153			27		(17		)
Net Periodic (Benefit) Cost	$	196		$	190	$	127
Plan Contributions During the Period	$	—		$	116	$	37

Footnotes:

1. Included in Salaries and Employee Benefits on the Consolidated Statements of Income

2. Included in Other Operating Expense on the Consolidated Statements of Income

XML

Consolidated Statements of Changes In Stockholders' Equity (Parenthetical) - $ / shares	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Statement of Stockholders' Equity [Abstract]
Cash Dividends Paid, per Share (in dollars per share)	$ 0.26	$ 0.252
Exercised (in shares)	14,282	26,135
Shares Issued Under Employee Stock Purchase Plan (in shares)	3,648	3,709
Shares Issued for Dividend Reinvestment Plans (in shares)	16,001	13,132
Purchase of Treasury Stock (in shares)	50,021	40,852

XML

Consolidated Statements of Income - USD ($) shares in Thousands, $ in Thousands		3 Months Ended
		Mar. 31, 2020		Mar. 31, 2019
INTEREST AND DIVIDEND INCOME
Interest and Fees on Loans		$ 24,874		$ 22,403
Interest on Deposits at Banks		124		195
Interest and Dividends on Investment Securities:
Fully Taxable		2,193		2,369
Exempt from Federal Taxes		1,035		1,246
Total Interest and Dividend Income		28,226		26,213
INTEREST EXPENSE
Interest-Bearing Checking Accounts		487		482
Savings Deposits		2,471		1,601
Time Deposits over $250,000		533		396
Other Time Deposits		1,000		713
Federal Funds Purchased and Securities Sold Under Agreements to Repurchase		22		22
Federal Home Loan Bank Advances		429		1,594
Junior Subordinated Obligations Issued to Unconsolidated Subsidiary Trusts		228		269
Interest on Financing Leases		50		15
Total Interest Expense		5,220		5,092
NET INTEREST INCOME		23,006		21,121
Provision for Loan Losses		2,772		472
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES		20,234		20,649
NONINTEREST INCOME
Insurance Commissions		1,632		1,719
Net (Loss) Gain on Securities		(374)		76
Net Gain on Sales of Loans		213		104
Other Operating Income		1,559		479
Total Noninterest Income		7,694		6,887
NONINTEREST EXPENSE
Salaries and Employee Benefits		10,383		9,319
Occupancy Expenses, Net		1,449		1,420
Technology and Equipment Expense		3,352		3,141
FDIC Assessments		219		212
Other Operating Expense		2,351		2,560
Total Noninterest Expense		17,754		16,652
INCOME BEFORE PROVISION FOR INCOME TAXES		10,174		10,884
Provision for Income Taxes		2,047		2,150
NET INCOME		$ 8,127		$ 8,734
Average Shares Outstanding:
Basic (in shares)		14,996	[1]	14,903	[2]
Diluted (in shares)	[2]	15,026		14,956
Per Common Share:
Basic Earnings (in dollars per share)	[1]	$ 0.54		$ 0.59
Diluted Earnings (in dollars per share)	[1]	$ 0.54		$ 0.58
Fiduciary and Trust
NONINTEREST INCOME
Revenue from Contract with Customer		$ 2,213		$ 2,107
Deposit Account
NONINTEREST INCOME
Revenue from Contract with Customer		$ 2,451		$ 2,402

[1] Cash dividends paid per share have been adjusted for the September 27, 2019 3% stock dividend.

[2] 2019 Share and Per Share Amounts have been restated for the September 27, 2019 3% stock dividend.

XML

Loans Impaired Loans (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019	Dec. 31, 2019
Recorded Investment:
With No Related Allowance	$ 1,946	$ 2,945	$ 807
With a Related Allowance	289	0	294
Unpaid Principal Balance:
With No Related Allowance	1,945	2,943	806
With a Related Allowance	290	0	295
Average Recorded Balance:
With No Related Allowance	1,377	2,937
With a Related Allowance	292	147
Interest Income Recognized:
With No Related Allowance	10	0
With a Related Allowance	0	0
Cash Basis Income:
With No Related Allowance	0	0
With a Related Allowance	0	0
Commercial
Recorded Investment:
With No Related Allowance	0	38	0
With a Related Allowance	33	0	34
Unpaid Principal Balance:
With No Related Allowance	0	424	0
With a Related Allowance	34	0	35
Average Recorded Balance:
With No Related Allowance	0	234
With a Related Allowance	34	0
Interest Income Recognized:
With No Related Allowance	0	0
With a Related Allowance	0	0
Cash Basis Income:
With No Related Allowance	0	0
With a Related Allowance	0	0
Commercial Real Estate
Recorded Investment:
With No Related Allowance	1,137	389	0
With a Related Allowance	0	0	0
Unpaid Principal Balance:
With No Related Allowance	1,137	2	0
With a Related Allowance	0	0	0
Average Recorded Balance:
With No Related Allowance	569	591
With a Related Allowance	0	0
Interest Income Recognized:
With No Related Allowance	10	0
With a Related Allowance	0	0
Cash Basis Income:
With No Related Allowance	0	0
With a Related Allowance	0	0
Consumer
Recorded Investment:
With No Related Allowance	112	101	108
With a Related Allowance	0	0	0
Unpaid Principal Balance:
With No Related Allowance	111	101	107
With a Related Allowance	0	0	0
Average Recorded Balance:
With No Related Allowance	110	101
With a Related Allowance	0	0
Interest Income Recognized:
With No Related Allowance	0	0
With a Related Allowance	0	0
Cash Basis Income:
With No Related Allowance	0	0
With a Related Allowance	0	0
Residential
Recorded Investment:
With No Related Allowance	697	2,417	699
With a Related Allowance	256	0	260
Unpaid Principal Balance:
With No Related Allowance	697	2,416	699
With a Related Allowance	256	0	$ 260
Average Recorded Balance:
With No Related Allowance	698	2,011
With a Related Allowance	258	147
Interest Income Recognized:
With No Related Allowance	0	0
With a Related Allowance	0	0
Cash Basis Income:
With No Related Allowance	0	0
With a Related Allowance	$ 0	$ 0

XML

Comprehensive Income Changes in Accumulated Other Comprehensive Income By Component (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
AOCI Including Portion Attributable to Noncontrolling Interest, Net of Tax [Roll Forward]
Stockholders' equity, beginning balance	$ 301,728	$ 269,584
Other comprehensive income or loss before reclassifications	3,879	2,080
Amounts reclassified from accumulated other comprehensive income	66	163
Other Comprehensive Income	3,945	2,243
Stockholders' equity, ending balance	309,398	276,609
Total
AOCI Including Portion Attributable to Noncontrolling Interest, Net of Tax [Roll Forward]
Stockholders' equity, beginning balance	(6,357)	(13,810)
Stockholders' equity, ending balance	(2,412)	(11,567)
Unrealized Gains and Losses on Available for Sale Securities
AOCI Including Portion Attributable to Noncontrolling Interest, Net of Tax [Roll Forward]
Stockholders' equity, beginning balance	465	(3,697)
Other comprehensive income or loss before reclassifications	4,098	2,080
Amounts reclassified from accumulated other comprehensive income	0	0
Other Comprehensive Income	4,098	2,080
Stockholders' equity, ending balance	4,563	(1,617)
Unrealized Loss on Cash Flow Swap
AOCI Including Portion Attributable to Noncontrolling Interest, Net of Tax [Roll Forward]
Stockholders' equity, beginning balance	0
Other comprehensive income or loss before reclassifications	(219)
Amounts reclassified from accumulated other comprehensive income	0
Other Comprehensive Income	(219)
Stockholders' equity, ending balance	(219)
Net Actuarial Gain (Loss)
AOCI Including Portion Attributable to Noncontrolling Interest, Net of Tax [Roll Forward]
Stockholders' equity, beginning balance	(5,847)	(8,971)
Other comprehensive income or loss before reclassifications	0	0
Amounts reclassified from accumulated other comprehensive income	27	121
Other Comprehensive Income	27	121
Stockholders' equity, ending balance	(5,820)	(8,850)
Net Priot Service (Cost) Credit
AOCI Including Portion Attributable to Noncontrolling Interest, Net of Tax [Roll Forward]
Stockholders' equity, beginning balance	(975)	(1,142)
Other comprehensive income or loss before reclassifications	0	0
Amounts reclassified from accumulated other comprehensive income	39	42
Other Comprehensive Income	39	42
Stockholders' equity, ending balance	$ (936)	$ (1,100)

XML

Stock-Based Compensation Expense (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Employee Stock
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Amount expensed	$ 76	$ 79
Discount from market price, percent	5.00%
Restricted Stock Units (RSU)
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Amount expensed	$ 27	$ 16

XML

Earnings Per Common Share (Tables)

3 Months Ended

Mar. 31, 2020

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 March 31, 2020 and 2019.  All share and per share amounts have been adjusted for the September 27, 2019, 3% stock dividend.

Earnings Per Share
	Three Months Ended
	March 31, 2020		March 31, 2019
Earnings Per Share - Basic:
Net Income	$	8,127	$	8,734
Weighted Average Shares - Basic	14,996		14,903
Earnings Per Share - Basic	$	0.54	$	0.59
Earnings Per Share - Diluted:
Net Income	$	8,127	$	8,734
Weighted Average Shares - Basic	14,996		14,903
Dilutive Average Shares Attributable to Stock Options	30		53
Weighted Average Shares - Diluted	15,026		14,956
Earnings Per Share - Diluted	$	0.54	$	0.58

XML

Commitments and Contingencies (Tables)

3 Months Ended

Mar. 31, 2020

Commitments and Contingencies Disclosure [Abstract]

Schedule of Guarantor Obligations

The following table presents the notional amount and fair value of Arrow's off-balance sheet commitments to extend credit and commitments under standby letters of credit as of March 31, 2020, December 31, 2019 and March 31, 2019:

Commitments to Extend Credit and Letters of Credit
	March 31, 2020		December 31, 2019		March 31, 2019
Notional Amount:
Commitments to Extend Credit	$	376,519	$	349,718	$	310,749
Standby Letters of Credit	3,301		3,129		4,431
Fair Value:
Commitments to Extend Credit	$	—	$	—	$	—
Standby Letters of Credit	29		31		20

XML

COVID-19 Pandemic

3 Months Ended

Mar. 31, 2020

Health Care Organizations [Abstract]

COVID-19 Pandemic

COVID-19 PANDEMIC

The outbreak of the novel coronavirus (COVID-19) pandemic has impacted the global economy, including the banking sector and many industries in which our customers operate, in a variety of significant ways. For further discussion of the impact COVID-19 has had and may in the future have on Arrow and its financial results and operations, please refer to the risk factor included in Item 8.01 of Arrow's Current Report on Form 8-K filed April 24, 2020.

XML

Consolidated Statements of Income (Parenthetical)	Sep. 27, 2019
Income Statement [Abstract]
Stock dividend, percent	3.00%

XML

Document and Entity Information - shares	3 Months Ended
	Mar. 31, 2020	Apr. 30, 2020
Document and Entity Information [Abstract]
Entity Registrant Name	Arrow Financial Corporation
Entity Central Index Key	0000717538
Current Fiscal Year End Date	--12-31
Entity Filer Category	Accelerated Filer
Entity Emerging Growth Company	false
Entity Small Business	false
Document Type	10-Q
Document Period End Date	Mar. 31, 2020
Document Fiscal Year Focus	2020
Document Fiscal Period Focus	Q1
Amendment Flag	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding (in shares)		14,983,674
Entity Current Reporting Status	Yes

XML

Consolidated Statements of Cash Flows - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Cash Flows from Operating Activities:
Net Income	$ 8,127	$ 8,734
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
Provision for Loan Losses	2,772	472
Depreciation and Amortization	1,597	1,309
Net Loss (Gain) on Securities Transactions	374	(76)
Loans Originated and Held-for-Sale	(9,322)	(4,223)
Proceeds from the Sale of Loans Held-for-Sale	7,975	3,718
Net Gain on the Sale of Loans	(213)	(104)
Net (Gain) Loss on the Sale of Premises and Equipment, Other Real Estate Owned and Repossessed Assets	(91)	130
Contributions to Retirement Benefit Plans	(195)	(153)
Deferred Income Tax Benefit	(873)	(297)
Stock-Based Compensation Expense	103	95
Tax Benefit from Exercise of Stock Options	28	78
Net Increase in Other Assets	(5,719)	(1,565)
Net Increase in Other Liabilities	8,563	2,613
Net Cash Provided By Operating Activities	13,126	10,731
Cash Flows from Investing Activities:
Proceeds from the Maturities and Calls of Securities Available-for-Sale	17,444	21,261
Purchases of Securities Available-for-Sale	(33,201)	0
Proceeds from the Maturities and Calls of Securities Held-to-Maturity	7,075	5,319
Purchases of Securities Held-to-Maturity	(717)	(1,457)
Net Increase in Loans	(27,317)	(39,545)
Proceeds from the Sales of Premises and Equipment, Other Real Estate Owned and Repossessed Assets	781	442
Purchase of Premises and Equipment	(1,072)	(2,099)
Net Decrease in Other Investments	4,938	7,628
Net Cash Used By Investing Activities	(32,069)	(8,451)
Cash Flows from Financing Activities:
Net Increase in Deposits	194,951	144,513
Net Decrease in Short-Term Federal Home Loan Bank Borrowings	(130,000)	(159,500)
Net Increase in Short-Term Borrowings	6,810	3,748
Finance Lease Payments	(5)	(4)
Federal Home Loan Bank Advances	40,000	0
Repayments of Federal Home Loan Bank Term Advances	(20,000)	(10,000)
Purchase of Treasury Stock	(1,507)	(1,392)
Stock Options Exercised, Net	343	535
Shares Issued Under the Employee Stock Purchase Plan	121	117
Shares Issued for Dividend Reinvestment Plans	442	453
Cash Dividends Paid	(3,904)	(3,760)
Net Cash Provided (Used) By Financing Activities	87,251	(25,290)
Net Increase (Decrease) in Cash and Cash Equivalents	68,308	(23,010)
Cash and Cash Equivalents at Beginning of Period	70,221	84,239
Cash and Cash Equivalents at End of Period	138,529	61,229
Supplemental Disclosures to Statements of Cash Flow Information:
Interest on Deposits and Borrowings	5,264	4,924
Income Taxes	344	311
Non-cash Investing and Financing Activity:
Transfer of Loans to Other Real Estate Owned and Repossessed Assets	$ 371	$ 728

XML

Fair Values (Tables)

3 Months Ended

Mar. 31, 2020

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)
Fair Value of Assets and Liabilities Measured on a Recurring Basis:
March 31, 2020
Assets:
Securities Available-for Sale:
U.S. Government & Agency Obligations	$	5,181	$	—	$	5,181	$	—
State and Municipal Obligations	723		—		723		—
Mortgage-Backed Securities	371,482		—		371,482		—
Corporate and Other Debt Securities	800		—		800		—
Total Securities Available-for-Sale	378,186		—		378,186		—
Equity Securities	1,689		—		1,689		—
Total Securities Measured on a Recurring Basis	379,875		—		379,875		—
Derivatives, included in other assets	5,191		—		5,191		—
Total Measured on a Recurring Basis	$	385,066	$	—	$	385,066	$	—
Liabilities:
Derivatives, included in other liabilities	5,191		—		5,191		—
Total Measured on a Recurring Basis	$	5,191	$	—	$	5,191	$	—
December 31, 2019
Assets:
Securities Available-for Sale:
U.S. Government & Agency Obligations	$	5,054	$	—	$	5,054	$	—
State and Municipal Obligations	764		—		764		—
Mortgage-Backed Securities	350,716		—		350,716		—
Corporate and Other Debt Securities	800		—		800		—
Total Securities Available-for-Sale	357,334				357,334
Equity Securities	2,063		—		2,063		—
Total Securities Measured on a Recurring Basis	359,397		—		359,397		—

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)
Derivatives, included in other liabilities	69		—		69		—
Total Measured on a Recurring Basis	$	359,466	$	—	$	359,466	$	—
Liabilities:
Derivatives, included in other liabilities	$	69	$	—	$	69	$	—
Total Measured on a Recurring Basis	$	69	$	—	$	69	$	—
March 31, 2019
Assets:
Securities Available-for Sale:
U.S. Government & Agency Obligations	$	35,383	$	—	$	35,383	$	—
State and Municipal Obligations	1,116		—		1,116		—
Mortgage-Backed Securities	261,513		—		261,513		—
Corporate and Other Debt Securities	800		—		800		—
Total Securities Available-for-Sale	298,812				298,812
Equity Securities	1,850		—		1,850		—
Total Securities Measured on a Recurring Basis	$	300,662	$	—	$	300,662	$	—

	Fair Value		Quoted Prices In Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Gains (Losses) Recognized in Earnings
Fair Value of Assets and Liabilities Measured on a Nonrecurring Basis:
March 31, 2020
Collateral Dependent Impaired Loans	$	582	$	—	$	—	$	582
Other Real Estate Owned and Repossessed Assets, Net	942		—		—		942		—
December 31, 2019
Collateral Dependent Impaired Loans	$	285	$	—	$	—	$	285
Other Real Estate Owned and Repossessed Assets, Net	1,261		—		—		1,261		(186	)
March 31, 2019
Collateral Dependent Impaired Loans	$	684	$	—	$	—	$	684
Other Real Estate Owned and Repossessed Assets, Net	1,445		—		—		1,445		(101	)

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 Value		Fair Value		Level 1		Level 2		Level 3
March 31, 2020
Cash and Cash Equivalents	$	138,529	$	138,529	$	138,529	$	—	$	—
Securities Available-for-Sale	378,186		378,186		—		378,186		—
Securities Held-to-Maturity	238,520		242,804		—		242,804		—
Equity Securities	1,689		1,689		—		1,689		—
Federal Home Loan Bank and Federal   Reserve Bank Stock	5,379		5,379		—		5,379		—
Net Loans	2,390,556		2,368,033		—		—		2,368,033
Accrued Interest Receivable	7,856		7,856		—		7,856		—
Derivatives, included in other assets	5,191		5,191				5,191
Deposits	2,811,005		2,811,668		—		2,811,668		—
Federal Funds Purchased and Securities   Sold Under Agreements to Repurchase	57,909		57,909		—		57,909		—
Federal Home Loan Bank Term Advances	50,000		51,194		—		51,194		—
Junior Subordinated Obligations Issued   to Unconsolidated Subsidiary Trusts	20,000		20,000		—		20,000		—
Accrued Interest Payable	1,392		1,392		—		1,392		—
Derivatives, included in other liabilities	5,191		5,191		—		5,191		—

Schedule of Fair Values by Balance Sheet Grouping
					Fair Value Hierarchy
	Carrying Value		Fair Value		Level 1		Level 2		Level 3
December 31, 2019
Cash and Cash Equivalents	$	70,221	$	70,221	$	70,221	$	—	$	—
Securities Available-for-Sale	357,334		357,334		—		357,334		—
Securities Held-to-Maturity	245,065		249,618		—		249,618		—
Equity Securities	2,063		2,063		—		2,063
Federal Home Loan Bank and Federal   Reserve Bank Stock	10,317		10,317		—		10,317		—
Net Loans	2,364,933		2,332,797		—		—		2,332,797
Accrued Interest Receivable	7,377		7,377		—		7,377		—
Derivatives, included in other assets	69		69		—		69		—
Deposits	2,616,054		2,614,170		—		2,614,170		—
Federal Funds Purchased and Securities   Sold Under Agreements to Repurchase	51,099		51,099		—		51,099		—
Federal Home Loan Bank Overnight Advances	130,000		130,000		—		130,000		—
Federal Home Loan Bank Term Advances	30,000		29,993		—		29,993		—
Junior Subordinated Obligations Issued   to Unconsolidated Subsidiary Trusts	20,000		20,000		—		20,000		—
Accrued Interest Payable	1,436		1,436		—		1,436		—
Derivatives, included in other liabilities	69		69		—		69		—
March 31, 2019
Cash and Cash Equivalents	$	61,229	$	61,229	$	61,229	$	—	$	—
Securities Available-for-Sale	298,812		298,812		—		298,812		—
Securities Held-to-Maturity	279,400		280,414		—		280,414		—
Equity Securities	1,850		1,850		—		1,850
Federal Home Loan Bank and Federal   Reserve Bank Stock	7,878		7,878		—		7,878		—
Net Loans	2,214,835		2,164,298		—		—		2,164,298
Accrued Interest Receivable	8,180		8,180		—		8,180		—
Deposits	2,490,097		2,484,479		—		2,484,479		—
Federal Funds Purchased and Securities   Sold Under Agreements to Repurchase	58,407		58,407		—		58,407		—
Federal Home Loan Bank Overnight Advances	74,500		74,500		—		74,500		—
Federal Home Loan Bank Term Advances	35,000		34,805		—		34,805		—
Junior Subordinated Obligations Issued   to Unconsolidated Subsidiary Trusts	20,000		20,000		—		20,000		—
Accrued Interest Payable	737		737		—		737		—

XML

Investment Securities - Held to Maturity (Details) $ in Thousands	Mar. 31, 2020 USD ($) security	Dec. 31, 2019 USD ($) security	Mar. 31, 2019 USD ($) security
Schedule of Held-to-maturity Securities [Line Items]
Held-To-Maturity Securities, at Amortized Cost	$ 238,520	$ 245,065	$ 279,400
Gross Unrealized Gains	4,433	4,647	1,792
Gross Unrealized Losses	(149)	(94)	(778)
Held-To-Maturity Securities, at Fair Value	242,804	249,618	280,414
Maturities of Debt Securities, at Amortized Cost:
Within One Year	19,165
From 1 - 5 Years	147,180
From 5 - 10 Years	70,585
Over 10 Years	1,590
Maturities of Debt Securities, at Fair Value:
Within One Year	19,293
From 1 - 5 Years	149,856
From 5 - 10 Years	72,031
Over 10 Years	1,624
Securities in a Continuous Loss Position, at Fair Value:
Less than 12 Months	5,625	1,438	0
12 Months or Longer	1,867	1,994	97,471
Total	$ 7,492	$ 3,432	$ 97,471
Number of Securities in a Continuous Loss Position | security	16	10	222
Unrealized Losses on Securities in a Continuous Loss Position:
Less than 12 Months	$ 16	$ 85	$ 0
12 Months or Longer	133	9	778
Total	149	94	778
Equity Securities	1,689	2,063	1,850
State and Municipal Obligations
Schedule of Held-to-maturity Securities [Line Items]
Held-To-Maturity Securities, at Amortized Cost	204,148	208,243	234,454
Gross Unrealized Gains	3,104	4,170	1,695
Gross Unrealized Losses	(149)	(94)	(573)
Held-To-Maturity Securities, at Fair Value	207,103	212,319	235,576
Maturities of Debt Securities, at Amortized Cost:
Within One Year	16,308
From 1 - 5 Years	115,665
From 5 - 10 Years	70,585
Over 10 Years	1,590
Maturities of Debt Securities, at Fair Value:
Within One Year	16,329
From 1 - 5 Years	117,119
From 5 - 10 Years	72,031
Over 10 Years	1,624
Securities in a Continuous Loss Position, at Fair Value:
Less than 12 Months	5,625	1,438	0
12 Months or Longer	1,867	1,994	71,450
Total	$ 7,492	$ 3,432	$ 71,450
Number of Securities in a Continuous Loss Position | security	16	10	193
Unrealized Losses on Securities in a Continuous Loss Position:
Less than 12 Months	$ 16	$ 85	$ 0
12 Months or Longer	133	9	573
Total	149	94	573
Mortgage-Backed Securities - Residential
Schedule of Held-to-maturity Securities [Line Items]
Held-To-Maturity Securities, at Amortized Cost	34,372	36,822	44,946
Gross Unrealized Gains	1,329	477	97
Gross Unrealized Losses	0	0	(205)
Held-To-Maturity Securities, at Fair Value	35,701	37,299	44,838
Maturities of Debt Securities, at Amortized Cost:
Within One Year	2,857
From 1 - 5 Years	31,515
From 5 - 10 Years	0
Over 10 Years	0
Maturities of Debt Securities, at Fair Value:
Within One Year	2,964
From 1 - 5 Years	32,737
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	26,021
Total	$ 0	$ 0	$ 26,021
Number of Securities in a Continuous Loss Position | security	0	0	29
Unrealized Losses on Securities in a Continuous Loss Position:
Less than 12 Months	$ 0	$ 0	$ 0
12 Months or Longer	0	0	205
Total	0	0	205
Fair Value, Measurements, Recurring
Unrealized Losses on Securities in a Continuous Loss Position:
Equity Securities	1,689	2,063	1,850
Collateral Pledged
Schedule of Held-to-maturity Securities [Line Items]
Held-To-Maturity Securities, Pledged as Collateral, at Fair Value	231,539	237,969	265,465
US Government Agencies Debt Securities | Mortgage-Backed Securities - Residential
Schedule of Held-to-maturity Securities [Line Items]
Held-To-Maturity Securities, at Amortized Cost	1,594	1,703	2,069
US Government Agencies Debt Securities | Fair Value, Measurements, Recurring | Mortgage-Backed Securities - Residential
Schedule of Held-to-maturity Securities [Line Items]
Held-To-Maturity Securities, at Fair Value	1,655	1,720	2,012
US Government-sponsored Enterprises Debt Securities | Mortgage-Backed Securities - Residential
Schedule of Held-to-maturity Securities [Line Items]
Held-To-Maturity Securities, at Amortized Cost	32,778	35,119	42,877
US Government-sponsored Enterprises Debt Securities | Fair Value, Measurements, Recurring | Mortgage-Backed Securities - Residential
Schedule of Held-to-maturity Securities [Line Items]
Held-To-Maturity Securities, at Fair Value	$ 34,046	$ 35,579	$ 42,826

XML

Loans Allowance for Loan Losses (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019	Dec. 31, 2019
Financing Receivable, Allowance for Credit Loss [Roll Forward]
Allowance for Loan Losses, Beginning Balance	$ 21,187	$ 20,196
Charge-offs	(481)	(462)
Recoveries	159	167
Provision	2,772	472
Allowance for Loan Losses, Ending Balance	23,637	20,373
Financing Receivable, Allowance for Credit Loss, Additional Information [Abstract]
Allowance for loan losses - Loans Individually Evaluated for Impairment	41	0	$ 47
Allowance for loan losses - Loans Collectively Evaluated for Impairment	23,596	20,373	21,140
Ending Loan Balance - Individually Evaluated for Impairment	2,235	2,945	1,101
Ending Loan Balance - Collectively Evaluated for Impairment	2,411,958	2,232,263	2,385,019
Commercial
Financing Receivable, Allowance for Credit Loss [Roll Forward]
Allowance for Loan Losses, Beginning Balance	1,386	1,218
Charge-offs	(14)	(1)
Recoveries	0	0
Provision	267	33
Allowance for Loan Losses, Ending Balance	1,639	1,250
Financing Receivable, Allowance for Credit Loss, Additional Information [Abstract]
Allowance for loan losses - Loans Individually Evaluated for Impairment	4	0	5
Allowance for loan losses - Loans Collectively Evaluated for Impairment	1,635	1,250	1,381
Ending Loan Balance - Individually Evaluated for Impairment	34	40	35
Ending Loan Balance - Collectively Evaluated for Impairment	147,066	133,236	150,625
Commercial Real Estate
Financing Receivable, Allowance for Credit Loss [Roll Forward]
Allowance for Loan Losses, Beginning Balance	5,830	5,644
Charge-offs	0	(29)
Recoveries	0	0
Provision	1,235	(26)
Allowance for Loan Losses, Ending Balance	7,065	5,589
Financing Receivable, Allowance for Credit Loss, Additional Information [Abstract]
Allowance for loan losses - Loans Individually Evaluated for Impairment	0	0	0
Allowance for loan losses - Loans Collectively Evaluated for Impairment	7,065	5,589	5,830
Ending Loan Balance - Individually Evaluated for Impairment	1,137	387	0
Ending Loan Balance - Collectively Evaluated for Impairment	524,993	493,000	510,541
Consumer
Financing Receivable, Allowance for Credit Loss [Roll Forward]
Allowance for Loan Losses, Beginning Balance	9,408	8,882
Charge-offs	(467)	(418)
Recoveries	159	167
Provision	904	778
Allowance for Loan Losses, Ending Balance	10,004	9,409
Financing Receivable, Allowance for Credit Loss, Additional Information [Abstract]
Allowance for loan losses - Loans Individually Evaluated for Impairment	0	0	0
Allowance for loan losses - Loans Collectively Evaluated for Impairment	10,004	9,409	9,408
Ending Loan Balance - Individually Evaluated for Impairment	111	101	107
Ending Loan Balance - Collectively Evaluated for Impairment	824,598	746,698	811,091
Residential
Financing Receivable, Allowance for Credit Loss [Roll Forward]
Allowance for Loan Losses, Beginning Balance	4,563	4,452
Charge-offs	0	(14)
Recoveries	0	0
Provision	366	(313)
Allowance for Loan Losses, Ending Balance	4,929	4,125
Financing Receivable, Allowance for Credit Loss, Additional Information [Abstract]
Allowance for loan losses - Loans Individually Evaluated for Impairment	37	0	42
Allowance for loan losses - Loans Collectively Evaluated for Impairment	4,892	4,125	4,521
Ending Loan Balance - Individually Evaluated for Impairment	953	2,417	959
Ending Loan Balance - Collectively Evaluated for Impairment	$ 915,301	$ 859,329	$ 912,762

XML

Earnings Per Common Share

3 Months Ended

Mar. 31, 2020

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 March 31, 2020 and 2019.  All share and per share amounts have been adjusted for the September 27, 2019, 3% stock dividend.

Earnings Per Share
	Three Months Ended
	March 31, 2020		March 31, 2019
Earnings Per Share - Basic:
Net Income	$	8,127	$	8,734
Weighted Average Shares - Basic	14,996		14,903
Earnings Per Share - Basic	$	0.54	$	0.59
Earnings Per Share - Diluted:
Net Income	$	8,127	$	8,734
Weighted Average Shares - Basic	14,996		14,903
Dilutive Average Shares Attributable to Stock Options	30		53
Weighted Average Shares - Diluted	15,026		14,956
Earnings Per Share - Diluted	$	0.54	$	0.58

XML

Commitments and Contingencies

3 Months Ended

Mar. 31, 2020

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

COMMITMENTS AND CONTINGENCIES (In Thousands)

The following table presents the notional amount and fair value of Arrow's off-balance sheet commitments to extend credit and commitments under standby letters of credit as of March 31, 2020, December 31, 2019 and March 31, 2019:

Commitments to Extend Credit and Letters of Credit
	March 31, 2020		December 31, 2019		March 31, 2019
Notional Amount:
Commitments to Extend Credit	$	376,519	$	349,718	$	310,749
Standby Letters of Credit	3,301		3,129		4,431
Fair Value:
Commitments to Extend Credit	$	—	$	—	$	—
Standby Letters of Credit	29		31		20

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.  Those 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 not expected to be fully 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 lines of credit 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 does not issue any guarantees that would require liability-recognition or disclosure, other than its standby letters of credit.

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 commercial 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 March 31, 2020, December 31, 2019 and March 31, 2019 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 will 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 range from 1% to 3% of the notional amount.  Fees are collected upfront and amortized over the life of the commitment. The carrying amount and fair value of Arrow's standby letters of credit at March 31, 2020, December 31, 2019 and March 31, 2019, were insignificant.  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.

In the normal course of business, Arrow and its subsidiary banks become involved in a variety of routine legal proceedings.  At present, there are no legal proceedings pending or threatened, which in the opinion of management and counsel, would result in a material loss to Arrow.

XML

Leases - Future Lease Payments on Finance and Operating Leases (Details) - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019	Mar. 31, 2019
Operating Leases
2020	$ 776
2021	640
2022	563
2023	548
2024	515
Thereafter	4,028
Total	7,070
Less: Net Present Value Adjustment	1,468
Lease Liabilities	5,602		$ 5,639
Financing Leases
2020	240
2021	243
2022	132
2023	243
2024	252
Thereafter	8,110
Total	9,220
Less: Net Present Value Adjustment	3,971
Lease Liabilities	$ 5,249	$ 5,254	$ 2,946

XML

Fair Values - Recurring and Nonrecurring (Details) - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019	Mar. 31, 2019
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-Sale at Fair Value	$ 378,186	$ 357,334	$ 298,812
Equity Securities	1,689	2,063	1,850
Fair Value, Measurements, Recurring
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-Sale at Fair Value	378,186	357,334	298,812
Equity Securities	1,689	2,063	1,850
Total Securities Measured on a Recurring Basis	379,875	359,397	300,662
Derivatives, included in other assets	5,191	69
Total Measured on a Recurring Basis	385,066	359,466
Derivatives, included in other liabilities	5,191	69
Total Measured on a Recurring Basis	5,191	69
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 at Fair Value	0
Equity Securities	0	0	0
Total Securities Measured on a Recurring Basis	0	0	0
Derivatives, included in other assets	0	0
Total Measured on a Recurring Basis	0	0
Derivatives, included in other liabilities	0	0
Total Measured on a Recurring Basis	0	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 at Fair Value	378,186	357,334	298,812
Equity Securities	1,689	2,063	1,850
Total Securities Measured on a Recurring Basis	379,875	359,397	300,662
Derivatives, included in other assets	5,191	69
Total Measured on a Recurring Basis	385,066	359,466
Derivatives, included in other liabilities	5,191	69
Total Measured on a Recurring Basis	5,191	69
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 at Fair Value	0
Equity Securities	0	0	0
Total Securities Measured on a Recurring Basis	0	0	0
Derivatives, included in other assets	0	0
Total Measured on a Recurring Basis	0	0
Derivatives, included in other liabilities	0	0
Total Measured on a Recurring Basis	0	0
Fair Value, Measurements, Nonrecurring
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Collateral Dependent Impaired Loans	582	285	684
Collateral Dependent Impaired Loans, Life-to-Date Gains (Losses)
Other Real Estate Owned and Repossessed Assets, Net	942	1,261	1,445
Other Real Estate owned and Repossessed Assets, Net, Life-to-Date Gains (Losses)	0	(186)	(101)
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]
Collateral Dependent Impaired Loans	0	0	0
Other Real Estate Owned 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]
Collateral Dependent Impaired Loans	0	0	0
Other Real Estate Owned 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]
Collateral Dependent Impaired Loans	582	285	684
Other Real Estate Owned and Repossessed Assets, Net	942	1,261	1,445
U.S. Government & Agency Obligations
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-Sale at Fair Value	5,181	5,054	35,383
U.S. Government & Agency Obligations | Fair Value, Measurements, Recurring
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-Sale at Fair Value	5,181	5,054	35,383
U.S. Government & 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 at Fair Value	0	0	0
U.S. Government & 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 at Fair Value	5,181	5,054	35,383
U.S. Government & 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 at Fair Value	0	0	0
State and Municipal Obligations
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-Sale at Fair Value	723	764	1,116
State and Municipal Obligations | Fair Value, Measurements, Recurring
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-Sale at Fair Value	723	764	1,116
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 at Fair Value	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 at Fair Value	723	764	1,116
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 at Fair Value	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 at Fair Value	371,482	350,716	261,513
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 at Fair Value	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 at Fair Value	371,482	350,716	261,513
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 at Fair Value	0	0	0
Corporate and Other Debt Securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-Sale at Fair Value	800	800	800
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 at Fair Value	800	800	800
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 at Fair Value	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 at Fair Value	800	800	800
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 at Fair Value	$ 0	$ 0	$ 0

XML

Commitments and Contingencies - Commitments to Extend Credit and Letters of Credit (Details) - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019	Mar. 31, 2019
Commitments to Extend Credit
Loan Commitments and Letters of Credit [Line Items]
Notional Amount	$ 376,519	$ 349,718	$ 310,749
Fair Value	0	0	0
Standby Letters of Credit
Loan Commitments and Letters of Credit [Line Items]
Notional Amount	3,301	3,129	4,431
Fair Value	$ 29	$ 31	$ 20
Minimum | Standby Letters of Credit
Loan Commitments and Letters of Credit [Line Items]
Loan commitments, fixed fee percent	1.00%
Maximum | Standby Letters of Credit
Loan Commitments and Letters of Credit [Line Items]
Loan commitments, fixed fee percent	3.00%

XML

Stock-Based Compensation (Details)	3 Months Ended
	Mar. 31, 2020 plan $ / shares shares	Sep. 27, 2019
Share-based Payment Arrangement [Abstract]
Number of plans | plan	3
Stock dividend, percent		3.00%
Shares
Outstanding, beginning of period (in shares) | shares	241,242
Granted (in shares) | shares	50,800
Exercised (in shares) | shares	(14,282)
Forfeited (in shares) | shares	(2,752)
Outstanding, end of period (in shares) | shares	275,008
Exercisable at period end (in shares) | shares	155,195
Vested and expected to vest (in shares) | shares	119,813
Weighted Average Exercise Price
Outstanding at beginning of period (in dollars per share)	$ 27.58
Granted (in dollars per share)	35.28
Exercised (in dollars per share)	24.05
Forfeited (in dollars per share)	29.65
Outstanding, end of period (in dollars per share)	29.17
Exercisable at period end (in dollars per share)	26.23
Vested and expected to vest (in dollars per share)	32.97
Fair Value (in dollars per share)	$ 4.99
Dividend Yield	2.90%
Expected Volatility	20.25%
Risk Free Interest Rate	1.53%
Expected Lives, in years	6 years 8 months 5 days
Employee Stock Option
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Award expiration period (in years)	10 years
Award vesting period (in years)	4 years
Restricted Stock
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Award vesting period (in years)	3 years

XML

Consolidated Statements of Changes In Stockholders' Equity - 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, 2018		$ 269,584	$ 19,035	$ 314,533	$ 29,257	$ (100)	$ (13,810)	$ (79,331)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net Income		8,734			8,734
Other Comprehensive Income (Loss)		2,243					2,243
Cash Dividends Paid	[1]	(3,760)			(3,760)
Stock Options Exercised, Net		535		249				286
Shares Issued Under the Employee Stock Purchase Plan		117		76				41
Shares Issued for Dividend Reinvestment Plans		453		309				144
Stock-Based Compensation Expense		95		95
Purchases of Treasury Stock		(1,392)						(1,392)
Stockholders' equity, ending balance at Mar. 31, 2019		276,609	19,035	315,262	34,231	(100)	(11,567)	(80,252)
Stockholders' equity, beginning balance at Dec. 31, 2019		301,728	19,606	335,355	33,218	0	(6,357)	(80,094)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net Income		8,127			8,127
Other Comprehensive Income (Loss)		3,945					3,945
Cash Dividends Paid		(3,904)			(3,904)
Stock Options Exercised, Net		343		199				144
Shares Issued Under the Employee Stock Purchase Plan		121		84				37
Shares Issued for Dividend Reinvestment Plans		442		280				162
Stock-Based Compensation Expense		103		103
Purchases of Treasury Stock		(1,507)						(1,507)
Stockholders' equity, ending balance at Mar. 31, 2020		$ 309,398	$ 19,606	$ 336,021	$ 37,441	$ 0	$ (2,412)	$ (81,258)

[1] Cash dividends paid per share have been adjusted for the September 27, 2019 3% stock dividend.

XML

Consolidated Balance Sheets (Parenthetical) - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019	Mar. 31, 2019
Statement of Financial Position [Abstract]
Held-to-maturity securities, at fair value	$ 242,804	$ 249,618	$ 280,414
Preferred Stock, par value (in dollars per share)	$ 1	$ 1	$ 5
Preferred Stock, shares authorized (in shares)	1,000,000	1,000,000	1,000,000
Common Stock, par value (in dollars per share)	$ 1	$ 1	$ 1
Common Stock, shares authorized (in shares)	30,000,000	30,000,000	20,000,000
Common Stock, shares issued (in shares)	19,606,449	19,606,449	19,035,565
Unallocated ESOP Shares (in shares)	0	0	5,501
Treasury Stock (in shares)	4,624,348	4,608,258	4,556,083

XML

Stock-Based Compensation (Tables)

3 Months Ended

Mar. 31, 2020

Share-based Payment Arrangement [Abstract]

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

The following table summarizes information about stock option activity for the year to date period ended March 31, 2020.

	Shares			Weighted Average Exercise Price
Outstanding at January 1, 2020	241,242			$	27.58
Granted	50,800			35.28
Exercised	(14,282		)	24.05
Forfeited	(2,752		)	29.65
Outstanding at March 31, 2020	275,008			29.17
Vested at Period-End	155,195			26.23
Expected to Vest	119,813			32.97
Stock Options Granted
Weighted Average Grant Date Information:
Fair Value of Options Granted	$	4.99
Fair Value Assumptions:
Dividend Yield	2.90		%
Expected Volatility	20.25		%
Risk Free Interest Rate	1.53		%
Expected Lives (in years)	6.68

The following table summarizes information about restricted stock unit activity for the periods ended March 31, 2020 and 2019.

	Restricted Stock Units	Weighted Average Grant Date Fair Value
Non-vested at January 1, 2020	7,496	$	31.18
Granted	3,827	35.28
Non-vested at March 31, 2020	11,323	32.57
Non-vested at January 1, 2019	3,478	31.62
Granted	4,018	30.79
Non-vested at March 31, 2019	7,496	31.18

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

The following table presents information on the amounts expensed related to restricted stock units for the periods ended March 31, 2020 and 2019:

	For the Three Months Ended March 31,
	2020		2019
Amount expensed	$	27	$	16

The following table presents information on the amounts expensed related to stock options for the periods ended March 31, 2020 and 2019:

	For the Three Months Ended March 31,
	2020		2019
Amount expensed	$	76	$	79

XML

Investment Securities (Tables)

3 Months Ended

Mar. 31, 2020

Investments, Debt and Equity Securities [Abstract]

Debt Securities, Available-For-Sale

The following table is the schedule of Available-For-Sale Securities at March 31, 2020, December 31, 2019 and March 31, 2019:

Available-For-Sale Securities
	U.S. Government & Agency Obligations		State and Municipal Obligations		Mortgage- Backed Securities			Corporate and Other Debt Securities			Total Available- For-Sale Securities
March 31, 2020
Available-For-Sale Securities,   at Amortized Cost	$	5,002	$	723	$	365,333		$	1,000		$	372,058
Gross Unrealized Gains	179		—		7,484			—			7,663
Gross Unrealized Losses	—		—		(1,335		)	(200		)	(1,535		)
Available-For-Sale Securities,   at Fair Value	5,181		723		371,482			800			378,186
Available-For-Sale Securities,   Pledged as Collateral, at Fair Value											273,124
Maturities of Debt Securities,   at Amortized Cost:
Within One Year	$	—	$	26	$	14,201		$	—		$	14,227
From 1 - 5 Years	5,002		257		325,234			—			330,493
From 5 - 10 Years	—		—		25,898			1,000			26,898
Over 10 Years	—		440		—			—			440
Maturities of Debt Securities,   at Fair Value:
Within One Year	$	—	$	26	$	14,616		$	—		$	14,642
From 1 - 5 Years	5,181		257		331,422			—			336,860
From 5 - 10 Years	—		—		25,444			800			26,244
Over 10 Years	—		440		—			—			440
Securities in a Continuous   Loss Position, at Fair Value:
Less than 12 Months	$	—	$	—	$	18,846		$	—		$	18,846
12 Months or Longer	—		—		59,262			800			60,062
Total	$	—	$	—	$	78,108		$	800		$	78,908
Number of Securities in a   Continuous Loss Position	—		—		27			1			28
Unrealized Losses on   Securities in a Continuous   Loss Position:
Less than 12 Months	$	—	$	—	$	316		$	—		$	316
12 Months or Longer	—		—		1,019			200			1,219
Total	$	—	$	—	$	1,335		$	200		$	1,535
Disaggregated Details:
US Agency Obligations, at Amortized Cost	5,002
US Agency Obligations, at Fair Value	5,181
US Government Agency   Securities, at Amortized Cost					$	58,089
US Government Agency   Securities, at Fair Value					57,091
Government Sponsored Entity   Securities, at Amortized Cost					307,244
Government Sponsored Entity Securities, at Fair Value					314,391

Available-For-Sale Securities
	U.S. Government & Agency Obligations		State and Municipal Obligations		Mortgage- Backed Securities			Corporate and Other Debt Securities			Total Available- For-Sale Securities
December 31, 2019
Available-For-Sale Securities,   at Amortized Cost	$	5,002	$	764	$	349,944		$	1,000		$	356,710
Gross Unrealized Gains	52		—		1,852			—			1,904
Gross Unrealized Losses	—		—		(1,080		)	(200		)	(1,280		)
Available-For-Sale Securities,   at Fair Value	5,054		764		350,716			800			357,334
Available-For-Sale Securities,   Pledged as Collateral,   at Fair Value											164,426
Securities in a Continuous   Loss Position, at Fair Value:
Less than 12 Months	$	—	$	—	$	52,491		$	—		$	52,491
12 Months or Longer	—		—		97,164			800			97,964
Total	$	—	$	—	$	149,655		$	800		$	150,455
Number of Securities in a   Continuous Loss Position	—		—		54			1			55
Unrealized Losses on   Securities in a Continuous   Loss Position:
Less than 12 Months	$	—	$	—	$	317		$	—		$	317
12 Months or Longer	—		—		763			200			963
Total	$	—	$	—	$	1,080		$	200		$	1,280
Disaggregated Details:
US Agency Obligations, at Amortized Cost	5,002
US Agency Obligations, at Fair Value	5,054
US Government Agency   Securities, at Amortized Cost					$	61,102
US Government Agency   Securities, at Fair Value					60,616
Government Sponsored Entity   Securities, at Amortized Cost					288,842
Government Sponsored Entity Securities, at Fair Value					290,100

Available-For-Sale Securities
	U.S. Government & Agency Obligations			State and Municipal Obligations		Mortgage- Backed Securities			Corporate and Other Debt Securities			Total Available- For-Sale Securities
March 31, 2019
Available-For-Sale Securities,   at Amortized Cost	$	35,519		$	1,114	$	263,347		$	1,000		$	300,980
Gross Unrealized Gains	—			2		657			—			659
Gross Unrealized Losses	(136		)	—		(2,491		)	(200		)	(2,827		)
Available-For-Sale Securities,   at Fair Value	35,383			1,116		261,513			800			298,812
Available-For-Sale Securities,   Pledged as Collateral, at Fair Value												255,028
Securities in a Continuous   Loss Position, at Fair Value:
Less than 12 Months	$	—		$	—	$	53,131		$	—		$	53,131
12 Months or Longer	35,383			—		155,108			800			191,291
Total	$	35,383		$	—	$	208,239		$	800		$	244,422
Number of Securities in a   Continuous Loss Position	7			—		80			1			88
Unrealized Losses on Securities   in a Continuous Loss Position:
Less than 12 Months	$	—		$	—	$	258		$	—		$	258
12 Months or Longer	136			—		2,233			200			2,569
Total	$	136		$	—	$	2,491		$	200		$	2,827
Disaggregated Details:
US Agency Obligations, at Amortized Cost	35,519
US Agency Obligations, at Fair Value	35,383
US Government Agency   Securities, at Amortized Cost						$	70,358
US Government Agency   Securities, at Fair Value						70,034
Government Sponsored Entity   Securities, at Amortized Cost						192,989
Government Sponsored Entity Securities, at Fair Value						191,479

Held-To-Maturity Securities

The following table is the schedule of Held-To-Maturity Securities at March 31, 2020, December 31, 2019 and March 31, 2019:

Held-To-Maturity Securities
	State and Municipal Obligations			Mortgage- Backed Securities		Total Held-To Maturity Securities
March 31, 2020
Held-To-Maturity Securities,   at Amortized Cost	$	204,148		$	34,372	$	238,520
Gross Unrealized Gains	3,104			1,329		4,433
Gross Unrealized Losses	(149		)	—		(149		)
Held-To-Maturity Securities,   at Fair Value	207,103			35,701		242,804
Held-To-Maturity Securities,   Pledged as Collateral, at Fair Value						231,539
Maturities of Debt Securities,   at Amortized Cost:
Within One Year	$	16,308		$	2,857	$	19,165
From 1 - 5 Years	115,665			31,515		147,180
From 5 - 10 Years	70,585			—		70,585
Over 10 Years	1,590			—		1,590
Maturities of Debt Securities,   at Fair Value:
Within One Year	$	16,329		$	2,964	$	19,293
From 1 - 5 Years	117,119			32,737		149,856
From 5 - 10 Years	72,031			—		72,031
Over 10 Years	1,624			—		1,624
Securities in a Continuous   Loss Position, at Fair Value:
Less than 12 Months	$	5,625		$	—	$	5,625
12 Months or Longer	1,867			—		1,867
Total	$	7,492		$	—	$	7,492
Number of Securities in a   Continuous Loss Position	16			—		16
Unrealized Losses on Securities    in a Continuous Loss Position:
Less than 12 Months	$	16		$	—	$	16
12 Months or Longer	133			—		133
Total	$	149		$	—	$	149
Disaggregated Details:
US Government Agency   Securities, at Amortized Cost				$	1,594
US Government Agency   Securities, at Fair Value				1,655
Government Sponsored Entity   Securities, at Amortized Cost				32,778
Government Sponsored Entity Securities, at Fair Value				34,046

Held-To-Maturity Securities
	State and Municipal Obligations			Mortgage- Backed Securities			Total Held-To Maturity Securities
December 31, 2019
Held-To-Maturity Securities,   at Amortized Cost	$	208,243		$	36,822		$	245,065
Gross Unrealized Gains	4,170			477			4,647
Gross Unrealized Losses	(94		)	—			(94		)
Held-To-Maturity Securities,   at Fair Value	212,319			37,299			249,618
Held-To-Maturity Securities,   Pledged as Collateral, at Fair Value							237,969
Securities in a Continuous   Loss Position, at Fair Value:
Less than 12 Months	$	1,438		$	—		$	1,438
12 Months or Longer	1,994			—			1,994
Total	$	3,432		$	—		$	3,432
Number of Securities in a   Continuous Loss Position	10			—			10
Unrealized Losses on   Securities in a Continuous   Loss Position:
Less than 12 Months	$	85		$	—		$	85
12 Months or Longer	9			—			9
Total	$	94		$	—		$	94
Disaggregated Details:
US Government Agency   Securities, at Amortized Cost				$	1,703
US Government Agency   Securities, at Fair Value				1,720
Government Sponsored Entity   Securities, at Amortized Cost				35,119
Government Sponsored Entity Securities, at Fair Value				35,579
March 31, 2019
Held-To-Maturity Securities,   at Amortized Cost	$	234,454		$	44,946		$	279,400
Gross Unrealized Gains	1,695			97			1,792
Gross Unrealized Losses	(573		)	(205		)	(778		)
Held-To-Maturity Securities,   at Fair Value	235,576			44,838			280,414
Held-To-Maturity Securities,   Pledged as Collateral, at Fair Value							265,465
Securities in a Continuous   Loss Position, at Fair Value:
Less than 12 Months	$	—		$	—		$	—
12 Months or Longer	71,450			26,021			97,471
Total	$	71,450		$	26,021		$	97,471
Number of Securities in a   Continuous Loss Position	193			29			222

Held-To-Maturity Securities
	State and Municipal Obligations		Mortgage- Backed Securities		Total Held-To Maturity Securities
Unrealized Losses on   Securities in a Continuous   Loss Position:
Less than 12 Months	$	—	$	—	$	—
12 Months or Longer	573		205		778
Total	$	573	$	205	$	778
March 31, 2019
Disaggregated Details:
US Government Agency   Securities, at Amortized Cost			$	2,069
US Government Agency   Securities, at Fair Value			2,012
Government Sponsored Entity   Securities, at Amortized Cost			42,877
Government Sponsored Entity Securities, at Fair Value			42,826

Debt Securities, Trading, and Equity Securities, FV-NI

The following table is the schedule of Equity Securities at March 31, 2020, December 31, 2019 and March 31, 2019:

Equity Securities
	March 31, 2020	December 31, 2019	March 31, 2019
Equity Securities, at Fair Value	$1,689	$2,063	$1,850

Unrealized Gain (Loss) on Investments

The following is a summary of realized and unrealized gains and losses recognized in net income on equity securities during the three-month periods ended March 31, 2020 and 2019:

	Quarterly Period Ended:
	March 31, 2020			March 31, 2019
Net (Loss) Gain on Equity Securities	$	(374	)	$	76
Less: Net gain (loss) recognized during the reporting period on equity securities sold during the period	—			—
Unrealized net (loss) gain recognized during the reporting period on equity securities still held at the reporting date	$	(374	)	$	76

XML

Stock-Based Compensation

3 Months Ended

Mar. 31, 2020

Share-based Payment Arrangement [Abstract]

Stock-Based Compensation

STOCK-BASED COMPENSATION (Dollars In Thousands, Except Share and Per Share Amounts)

Arrow has established three stock-based compensation plans: a Long Term Incentive Plan, an Employee Stock Purchase Plan (ESPP) and an Employee Stock Ownership Plan (ESOP). All share and per share data have been adjusted for the September 27, 20193% stock dividend.

Long Term Incentive Plan

The Long Term Incentive Plan provides for the grant of incentive stock options, non-qualified stock options, restricted stock, restricted stock units, performance units and performance shares. The Compensation Committee of the Board of Directors administers the Long Term Incentive Plan.

Stock Options - Options may be granted at a price no less than the greater of the par value or fair market value of such shares on the date on which such option is granted, and generally expire ten years from the date of grant.  The options usually vest over a four-year period.

The following table summarizes information about stock option activity for the year to date period ended March 31, 2020.

	Shares			Weighted Average Exercise Price
Outstanding at January 1, 2020	241,242			$	27.58
Granted	50,800			35.28
Exercised	(14,282		)	24.05
Forfeited	(2,752		)	29.65
Outstanding at March 31, 2020	275,008			29.17
Vested at Period-End	155,195			26.23
Expected to Vest	119,813			32.97
Stock Options Granted
Weighted Average Grant Date Information:
Fair Value of Options Granted	$	4.99
Fair Value Assumptions:
Dividend Yield	2.90		%
Expected Volatility	20.25		%
Risk Free Interest Rate	1.53		%
Expected Lives (in years)	6.68

The following table presents information on the amounts expensed related to stock options for the periods ended March 31, 2020 and 2019:

	For the Three Months Ended March 31,
	2020		2019
Amount expensed	$	76	$	79

Restricted Stock Units - The Company grants restricted stock units which gives the recipient the right to receive shares of Company stock upon vesting. The fair value of each restricted stock unit is the market value of Company stock on the date of grant. 100% of the restricted stock unit awards vest three years from the grant date. Once vested, the restricted stock units become vested units and are no longer forfeitable. Vested units settle upon retirement of the recipient. Unvested restricted stock unit awards will generally be forfeited if the recipient ceases to be employed by the Company, with limited exceptions.

The following table summarizes information about restricted stock unit activity for the periods ended March 31, 2020 and 2019.

	Restricted Stock Units	Weighted Average Grant Date Fair Value
Non-vested at January 1, 2020	7,496	$	31.18
Granted	3,827	35.28
Non-vested at March 31, 2020	11,323	32.57
Non-vested at January 1, 2019	3,478	31.62
Granted	4,018	30.79
Non-vested at March 31, 2019	7,496	31.18

The following table presents information on the amounts expensed related to restricted stock units for the periods ended March 31, 2020 and 2019:

	For the Three Months Ended March 31,
	2020		2019
Amount expensed	$	27	$	16

Employee Stock Purchase Plan

Arrow sponsors an ESPP under which employees may purchase Arrow's common stock at a 5% discount below market price. Under current accounting guidance, a stock purchase plan with a discount of 5% or less is not considered a compensatory plan.

Employee Stock Ownership Plan

Arrow maintains an ESOP, pursuant to which substantially all employees of Arrow and its subsidiaries are eligible to participate upon satisfaction of applicable service requirements.  The ESOP borrowed funds from one of Arrow’s subsidiary banks to purchase outstanding shares of Arrow’s common stock.  The notes, which were fully repaid as of December 31, 2019, required annual payments of principal and interest through 2019.  As the debt was repaid, shares were released from collateral based on the proportion of debt paid to total debt outstanding for the year and allocated to active employees.  In addition, the Company makes additional cash contributions to the Plan each year.

Shares pledged as collateral were reported as unallocated ESOP shares in stockholders' equity. As shares were released from collateral, Arrow reported compensation expense equal to the current average market price of the shares, and the shares became outstanding for earnings per share computations.

XML

Investment Securities

3 Months Ended

Mar. 31, 2020

Investments, Debt and Equity Securities [Abstract]

Investment Securities

INVESTMENT SECURITIES (In Thousands)

The following table is the schedule of Available-For-Sale Securities at March 31, 2020, December 31, 2019 and March 31, 2019:

Available-For-Sale Securities
	U.S. Government & Agency Obligations		State and Municipal Obligations		Mortgage- Backed Securities			Corporate and Other Debt Securities			Total Available- For-Sale Securities
March 31, 2020
Available-For-Sale Securities,   at Amortized Cost	$	5,002	$	723	$	365,333		$	1,000		$	372,058
Gross Unrealized Gains	179		—		7,484			—			7,663
Gross Unrealized Losses	—		—		(1,335		)	(200		)	(1,535		)
Available-For-Sale Securities,   at Fair Value	5,181		723		371,482			800			378,186
Available-For-Sale Securities,   Pledged as Collateral, at Fair Value											273,124
Maturities of Debt Securities,   at Amortized Cost:
Within One Year	$	—	$	26	$	14,201		$	—		$	14,227
From 1 - 5 Years	5,002		257		325,234			—			330,493
From 5 - 10 Years	—		—		25,898			1,000			26,898
Over 10 Years	—		440		—			—			440
Maturities of Debt Securities,   at Fair Value:
Within One Year	$	—	$	26	$	14,616		$	—		$	14,642
From 1 - 5 Years	5,181		257		331,422			—			336,860
From 5 - 10 Years	—		—		25,444			800			26,244
Over 10 Years	—		440		—			—			440
Securities in a Continuous   Loss Position, at Fair Value:
Less than 12 Months	$	—	$	—	$	18,846		$	—		$	18,846
12 Months or Longer	—		—		59,262			800			60,062
Total	$	—	$	—	$	78,108		$	800		$	78,908
Number of Securities in a   Continuous Loss Position	—		—		27			1			28
Unrealized Losses on   Securities in a Continuous   Loss Position:
Less than 12 Months	$	—	$	—	$	316		$	—		$	316
12 Months or Longer	—		—		1,019			200			1,219
Total	$	—	$	—	$	1,335		$	200		$	1,535
Disaggregated Details:
US Agency Obligations, at Amortized Cost	5,002
US Agency Obligations, at Fair Value	5,181
US Government Agency   Securities, at Amortized Cost					$	58,089
US Government Agency   Securities, at Fair Value					57,091
Government Sponsored Entity   Securities, at Amortized Cost					307,244
Government Sponsored Entity Securities, at Fair Value					314,391

Available-For-Sale Securities
	U.S. Government & Agency Obligations		State and Municipal Obligations		Mortgage- Backed Securities			Corporate and Other Debt Securities			Total Available- For-Sale Securities
December 31, 2019
Available-For-Sale Securities,   at Amortized Cost	$	5,002	$	764	$	349,944		$	1,000		$	356,710
Gross Unrealized Gains	52		—		1,852			—			1,904
Gross Unrealized Losses	—		—		(1,080		)	(200		)	(1,280		)
Available-For-Sale Securities,   at Fair Value	5,054		764		350,716			800			357,334
Available-For-Sale Securities,   Pledged as Collateral,   at Fair Value											164,426
Securities in a Continuous   Loss Position, at Fair Value:
Less than 12 Months	$	—	$	—	$	52,491		$	—		$	52,491
12 Months or Longer	—		—		97,164			800			97,964
Total	$	—	$	—	$	149,655		$	800		$	150,455
Number of Securities in a   Continuous Loss Position	—		—		54			1			55
Unrealized Losses on   Securities in a Continuous   Loss Position:
Less than 12 Months	$	—	$	—	$	317		$	—		$	317
12 Months or Longer	—		—		763			200			963
Total	$	—	$	—	$	1,080		$	200		$	1,280
Disaggregated Details:
US Agency Obligations, at Amortized Cost	5,002
US Agency Obligations, at Fair Value	5,054
US Government Agency   Securities, at Amortized Cost					$	61,102
US Government Agency   Securities, at Fair Value					60,616
Government Sponsored Entity   Securities, at Amortized Cost					288,842
Government Sponsored Entity Securities, at Fair Value					290,100

Available-For-Sale Securities
	U.S. Government & Agency Obligations			State and Municipal Obligations		Mortgage- Backed Securities			Corporate and Other Debt Securities			Total Available- For-Sale Securities
March 31, 2019
Available-For-Sale Securities,   at Amortized Cost	$	35,519		$	1,114	$	263,347		$	1,000		$	300,980
Gross Unrealized Gains	—			2		657			—			659
Gross Unrealized Losses	(136		)	—		(2,491		)	(200		)	(2,827		)
Available-For-Sale Securities,   at Fair Value	35,383			1,116		261,513			800			298,812
Available-For-Sale Securities,   Pledged as Collateral, at Fair Value												255,028
Securities in a Continuous   Loss Position, at Fair Value:
Less than 12 Months	$	—		$	—	$	53,131		$	—		$	53,131
12 Months or Longer	35,383			—		155,108			800			191,291
Total	$	35,383		$	—	$	208,239		$	800		$	244,422
Number of Securities in a   Continuous Loss Position	7			—		80			1			88
Unrealized Losses on Securities   in a Continuous Loss Position:
Less than 12 Months	$	—		$	—	$	258		$	—		$	258
12 Months or Longer	136			—		2,233			200			2,569
Total	$	136		$	—	$	2,491		$	200		$	2,827
Disaggregated Details:
US Agency Obligations, at Amortized Cost	35,519
US Agency Obligations, at Fair Value	35,383
US Government Agency   Securities, at Amortized Cost						$	70,358
US Government Agency   Securities, at Fair Value						70,034
Government Sponsored Entity   Securities, at Amortized Cost						192,989
Government Sponsored Entity Securities, at Fair Value						191,479

The following table is the schedule of Held-To-Maturity Securities at March 31, 2020, December 31, 2019 and March 31, 2019:

Held-To-Maturity Securities
	State and Municipal Obligations			Mortgage- Backed Securities		Total Held-To Maturity Securities
March 31, 2020
Held-To-Maturity Securities,   at Amortized Cost	$	204,148		$	34,372	$	238,520
Gross Unrealized Gains	3,104			1,329		4,433
Gross Unrealized Losses	(149		)	—		(149		)
Held-To-Maturity Securities,   at Fair Value	207,103			35,701		242,804
Held-To-Maturity Securities,   Pledged as Collateral, at Fair Value						231,539
Maturities of Debt Securities,   at Amortized Cost:
Within One Year	$	16,308		$	2,857	$	19,165
From 1 - 5 Years	115,665			31,515		147,180
From 5 - 10 Years	70,585			—		70,585
Over 10 Years	1,590			—		1,590
Maturities of Debt Securities,   at Fair Value:
Within One Year	$	16,329		$	2,964	$	19,293
From 1 - 5 Years	117,119			32,737		149,856
From 5 - 10 Years	72,031			—		72,031
Over 10 Years	1,624			—		1,624
Securities in a Continuous   Loss Position, at Fair Value:
Less than 12 Months	$	5,625		$	—	$	5,625
12 Months or Longer	1,867			—		1,867
Total	$	7,492		$	—	$	7,492
Number of Securities in a   Continuous Loss Position	16			—		16
Unrealized Losses on Securities    in a Continuous Loss Position:
Less than 12 Months	$	16		$	—	$	16
12 Months or Longer	133			—		133
Total	$	149		$	—	$	149
Disaggregated Details:
US Government Agency   Securities, at Amortized Cost				$	1,594
US Government Agency   Securities, at Fair Value				1,655
Government Sponsored Entity   Securities, at Amortized Cost				32,778
Government Sponsored Entity Securities, at Fair Value				34,046

Held-To-Maturity Securities
	State and Municipal Obligations			Mortgage- Backed Securities			Total Held-To Maturity Securities
December 31, 2019
Held-To-Maturity Securities,   at Amortized Cost	$	208,243		$	36,822		$	245,065
Gross Unrealized Gains	4,170			477			4,647
Gross Unrealized Losses	(94		)	—			(94		)
Held-To-Maturity Securities,   at Fair Value	212,319			37,299			249,618
Held-To-Maturity Securities,   Pledged as Collateral, at Fair Value							237,969
Securities in a Continuous   Loss Position, at Fair Value:
Less than 12 Months	$	1,438		$	—		$	1,438
12 Months or Longer	1,994			—			1,994
Total	$	3,432		$	—		$	3,432
Number of Securities in a   Continuous Loss Position	10			—			10
Unrealized Losses on   Securities in a Continuous   Loss Position:
Less than 12 Months	$	85		$	—		$	85
12 Months or Longer	9			—			9
Total	$	94		$	—		$	94
Disaggregated Details:
US Government Agency   Securities, at Amortized Cost				$	1,703
US Government Agency   Securities, at Fair Value				1,720
Government Sponsored Entity   Securities, at Amortized Cost				35,119
Government Sponsored Entity Securities, at Fair Value				35,579
March 31, 2019
Held-To-Maturity Securities,   at Amortized Cost	$	234,454		$	44,946		$	279,400
Gross Unrealized Gains	1,695			97			1,792
Gross Unrealized Losses	(573		)	(205		)	(778		)
Held-To-Maturity Securities,   at Fair Value	235,576			44,838			280,414
Held-To-Maturity Securities,   Pledged as Collateral, at Fair Value							265,465
Securities in a Continuous   Loss Position, at Fair Value:
Less than 12 Months	$	—		$	—		$	—
12 Months or Longer	71,450			26,021			97,471
Total	$	71,450		$	26,021		$	97,471
Number of Securities in a   Continuous Loss Position	193			29			222

Held-To-Maturity Securities
	State and Municipal Obligations		Mortgage- Backed Securities		Total Held-To Maturity Securities
Unrealized Losses on   Securities in a Continuous   Loss Position:
Less than 12 Months	$	—	$	—	$	—
12 Months or Longer	573		205		778
Total	$	573	$	205	$	778
March 31, 2019
Disaggregated Details:
US Government Agency   Securities, at Amortized Cost			$	2,069
US Government Agency   Securities, at Fair Value			2,012
Government Sponsored Entity   Securities, at Amortized Cost			42,877
Government Sponsored Entity Securities, at Fair Value			42,826

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

Securities in a continuous loss position, in the tables above for March 31, 2020, December 31, 2019 and March 31, 2019, do not reflect any deterioration of the credit worthiness of the issuing entities.

 U.S. government agency securities, including mortgage-backed securities, are all rated AAA by Moody's and 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.  Credit analysis is performed in-house based upon data that has been submitted by the issuers to the New York State Comptroller. That analysis shows no deterioration in the credit worthiness of the municipalities.  Subsequent to March 31, 2020, 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 there is no current intention to sell any of our temporarily impaired securities, and because it is not more likely than not that it would be required to sell the securities prior to recovery, the impairment is considered temporary.

Pledged securities, in the tables above, are primarily used to collateralize state and municipal deposits, as required under New York State law. A portion of the pledged securities are used to collateralize repurchase agreements and pooled deposits of our trust customers.

The following table is the schedule of Equity Securities at March 31, 2020, December 31, 2019 and March 31, 2019:

Equity Securities
	March 31, 2020	December 31, 2019	March 31, 2019
Equity Securities, at Fair Value	$1,689	$2,063	$1,850

The following is a summary of realized and unrealized gains and losses recognized in net income on equity securities during the three-month periods ended March 31, 2020 and 2019:

	Quarterly Period Ended:
	March 31, 2020			March 31, 2019
Net (Loss) Gain on Equity Securities	$	(374	)	$	76
Less: Net gain (loss) recognized during the reporting period on equity securities sold during the period	—			—
Unrealized net (loss) gain recognized during the reporting period on equity securities still held at the reporting date	$	(374	)	$	76

XML

Leases

3 Months Ended

Mar. 31, 2020

Leases [Abstract]

Leases

LEASES (Dollars In Thousands)

The Company is a lessee in its leases, which are mainly for financial services locations in addition to leases for corporate vehicles. These leases generally require the Company to pay third-party expenses on behalf of the Lessor, which are referred to as variable payments. Under some leases, the Company pays the variable payments to the lessor, and in other leases, the Company pays the variable payments directly to the applicable third party. None of the Company's current leases include any residual value guarantees or any subleases, and there are no significant rights and obligations of the Company for leases that have not commenced as of the reporting date.

Arrow leases five of its branch offices, at market rates, from Stewart’s Shops Corp.  Mr. Gary C. Dake, President of Stewart’s Shops Corp., serves as a director on the board of directors of each of Arrow and Saratoga National Bank and Trust Company.

The following includes quantitative data related to the Company's leases as of and for the three months ended March 31, 2020 and March 31, 2019:

		Three Months Ended
Finance Lease Amounts:	Classification	March 31, 2020			March 31, 2019
Right-of-use Assets	Premises and Equipment, Net	$	5,124		$	2,922
Lease Liabilities	Finance Leases	5,249			2,946
Operating Lease Amounts:
Right-of-use Assets	Other Assets	$	5,529		$	5,587
Lease Liabilities	Other Liabilities	5,602			5,639
Other Information:
Cash Paid For Amounts Included In The Measurement Of Lease Liabilities:
Operating Outgoing Cash Flows From Finance Leases		$	50		$	15
Operating Outgoing Cash Flows From Operating Leases		158			173
Financing Outgoing Cash Flows From Finance Leases		5			4
Right-of-use Assets Obtained In Exchange For New Finance Lease Liabilities		—			2,939
Right-of-use Assets Obtained In Exchange For New Operating Lease Liabilities		—			5,725
Weighted-average Remaining Lease Term—Finance Leases (Yrs.)		29.90			26.91
Weighted-average Remaining Lease Term—Operating Leases (Yrs.)		13.70			14.63
Weighted-average Discount Rate—Finance Leases %		3.75		%	3.82		%
Weighted-average Discount Rate—Operating Leases %		3.36		%	3.50		%

Lease cost information for the Company's leases is as follows:
	Three Months Ended
	March 31, 2020		March 31, 2019
Lease Cost:
Finance Lease Cost:
Amortization of Right-of-use assets	$	44	$	17
Interest on Lease Liabilities	50		15
Operating Lease Cost	207		173
Short-term Lease Cost	7		33
Variable Lease Cost	55		56
Total Lease Cost	$	363	$	294

Future Lease Payments at March 31, 2020 are as follows:
	Operating Leases		Financing Leases
Twelve Months Ended:
3/31/2021	$	776	$	240
3/31/2022	640		243
3/31/2023	563		132
3/31/2024	548		243
3/31/2025	515		252
Thereafter	4,028		8,110
Total Undiscounted Cash Flows	$	7,070	$	9,220
Less: Net Present Value Adjustment	1,468		3,971
Lease Liability	$	5,602	$	5,249

Leases

LEASES (Dollars In Thousands)

The Company is a lessee in its leases, which are mainly for financial services locations in addition to leases for corporate vehicles. These leases generally require the Company to pay third-party expenses on behalf of the Lessor, which are referred to as variable payments. Under some leases, the Company pays the variable payments to the lessor, and in other leases, the Company pays the variable payments directly to the applicable third party. None of the Company's current leases include any residual value guarantees or any subleases, and there are no significant rights and obligations of the Company for leases that have not commenced as of the reporting date.

Arrow leases five of its branch offices, at market rates, from Stewart’s Shops Corp.  Mr. Gary C. Dake, President of Stewart’s Shops Corp., serves as a director on the board of directors of each of Arrow and Saratoga National Bank and Trust Company.

The following includes quantitative data related to the Company's leases as of and for the three months ended March 31, 2020 and March 31, 2019:

		Three Months Ended
Finance Lease Amounts:	Classification	March 31, 2020			March 31, 2019
Right-of-use Assets	Premises and Equipment, Net	$	5,124		$	2,922
Lease Liabilities	Finance Leases	5,249			2,946
Operating Lease Amounts:
Right-of-use Assets	Other Assets	$	5,529		$	5,587
Lease Liabilities	Other Liabilities	5,602			5,639
Other Information:
Cash Paid For Amounts Included In The Measurement Of Lease Liabilities:
Operating Outgoing Cash Flows From Finance Leases		$	50		$	15
Operating Outgoing Cash Flows From Operating Leases		158			173
Financing Outgoing Cash Flows From Finance Leases		5			4
Right-of-use Assets Obtained In Exchange For New Finance Lease Liabilities		—			2,939
Right-of-use Assets Obtained In Exchange For New Operating Lease Liabilities		—			5,725
Weighted-average Remaining Lease Term—Finance Leases (Yrs.)		29.90			26.91
Weighted-average Remaining Lease Term—Operating Leases (Yrs.)		13.70			14.63
Weighted-average Discount Rate—Finance Leases %		3.75		%	3.82		%
Weighted-average Discount Rate—Operating Leases %		3.36		%	3.50		%

Lease cost information for the Company's leases is as follows:
	Three Months Ended
	March 31, 2020		March 31, 2019
Lease Cost:
Finance Lease Cost:
Amortization of Right-of-use assets	$	44	$	17
Interest on Lease Liabilities	50		15
Operating Lease Cost	207		173
Short-term Lease Cost	7		33
Variable Lease Cost	55		56
Total Lease Cost	$	363	$	294

Future Lease Payments at March 31, 2020 are as follows:
	Operating Leases		Financing Leases
Twelve Months Ended:
3/31/2021	$	776	$	240
3/31/2022	640		243
3/31/2023	563		132
3/31/2024	548		243
3/31/2025	515		252
Thereafter	4,028		8,110
Total Undiscounted Cash Flows	$	7,070	$	9,220
Less: Net Present Value Adjustment	1,468		3,971
Lease Liability	$	5,602	$	5,249

XML

Derivative Instruments and Hedging Activities (Tables)

3 Months Ended

Mar. 31, 2020

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Schedule of Derivative Instruments

The following table depicts the fair value adjustment recorded related to the notional amount of derivatives outstanding as well as the notional amount of the interest rate swap agreements.

Derivatives Not Designated as Hedging Instruments - Interest Rate Swap Agreements
	March 31, 2020		December 31, 2019		March 31, 2019
Fair value adjustment included in other assets	$	5,191	$	69	$	—
Fair value adjustment included in other liabilities	5,191		69		—
Notional amount	121,559		44,531		—

Schedule of Cash Flow Hedges Included in Accumulated Other Comprehensive Income (Loss)

The following table indicates the effect of cash flow hedge accounting on AOCI and on the unaudited interim consolidated statement of income.

Derivatives Designated as Hedging Instruments - Cash Flow Hedge Agreements
	March 31, 2020			December 31, 2019		March 31, 2019
Amount of loss recognized in AOCI	$	(294	)	$	—	$	—
Amount of gain reclassified from AOCI interest expense	—			—		—

XML

Loans Loan Categories and Past Due Loans (Details) - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019	Mar. 31, 2019
Financing Receivable, Recorded Investment, Aging [Abstract]
Loans receivable held-for-sale, net, not part of disposal group	$ 1,905	$ 215	$ 201
Recorded investment, past due	12,736	13,606	10,177
Current Loans	2,401,457	2,372,514	2,225,031
Total Loans	2,414,193	2,386,120	2,235,208
Loans 90 or More Days Past Due and Still Accruing Interest	437	253	64
Nonaccrual Loans	4,943	4,005	5,143
Financing Receivables, 30 to 59 Days Past Due
Financing Receivable, Recorded Investment, Aging [Abstract]
Recorded investment, past due	7,900	5,972	6,479
Financing Receivables, 60 to 89 Days Past Due
Financing Receivable, Recorded Investment, Aging [Abstract]
Recorded investment, past due	1,843	5,035	1,594
Financing Receivables, Equal to Greater than 90 Days Past Due
Financing Receivable, Recorded Investment, Aging [Abstract]
Recorded investment, past due	2,993	2,599	2,104
Commercial
Financing Receivable, Recorded Investment, Aging [Abstract]
Recorded investment, past due	251	213	185
Current Loans	146,849	150,447	133,091
Total Loans	147,100	150,660	133,276
Loans 90 or More Days Past Due and Still Accruing Interest	5	0	0
Nonaccrual Loans	63	81	415
Commercial | Financing Receivables, 30 to 59 Days Past Due
Financing Receivable, Recorded Investment, Aging [Abstract]
Recorded investment, past due	173	150	168
Commercial | Financing Receivables, 60 to 89 Days Past Due
Financing Receivable, Recorded Investment, Aging [Abstract]
Recorded investment, past due	70	42	0
Commercial | Financing Receivables, Equal to Greater than 90 Days Past Due
Financing Receivable, Recorded Investment, Aging [Abstract]
Recorded investment, past due	8	21	17
Commercial Real Estate
Financing Receivable, Recorded Investment, Aging [Abstract]
Recorded investment, past due	1,482	592	316
Current Loans	524,648	509,949	493,071
Total Loans	526,130	510,541	493,387
Loans 90 or More Days Past Due and Still Accruing Interest	238	0	0
Nonaccrual Loans	1,445	326	248
Commercial Real Estate | Financing Receivables, 30 to 59 Days Past Due
Financing Receivable, Recorded Investment, Aging [Abstract]
Recorded investment, past due	461	0	208
Commercial Real Estate | Financing Receivables, 60 to 89 Days Past Due
Financing Receivable, Recorded Investment, Aging [Abstract]
Recorded investment, past due	110	266	0
Commercial Real Estate | Financing Receivables, Equal to Greater than 90 Days Past Due
Financing Receivable, Recorded Investment, Aging [Abstract]
Recorded investment, past due	911	326	108
Consumer
Financing Receivable, Recorded Investment, Aging [Abstract]
Recorded investment, past due	7,636	8,815	6,514
Current Loans	817,073	802,383	740,285
Total Loans	824,709	811,198	746,799
Loans 90 or More Days Past Due and Still Accruing Interest	93	0	0
Nonaccrual Loans	715	663	588
Consumer | Financing Receivables, 30 to 59 Days Past Due
Financing Receivable, Recorded Investment, Aging [Abstract]
Recorded investment, past due	5,636	5,670	4,758
Consumer | Financing Receivables, 60 to 89 Days Past Due
Financing Receivable, Recorded Investment, Aging [Abstract]
Recorded investment, past due	1,451	2,700	1,387
Consumer | Financing Receivables, Equal to Greater than 90 Days Past Due
Financing Receivable, Recorded Investment, Aging [Abstract]
Recorded investment, past due	549	445	369
Residential
Financing Receivable, Recorded Investment, Aging [Abstract]
Recorded investment, past due	3,367	3,986	3,162
Current Loans	912,887	909,735	858,584
Total Loans	916,254	913,721	861,746
Loans 90 or More Days Past Due and Still Accruing Interest	101	253	64
Nonaccrual Loans	2,720	2,935	3,892
Residential | Financing Receivables, 30 to 59 Days Past Due
Financing Receivable, Recorded Investment, Aging [Abstract]
Recorded investment, past due	1,630	152	1,345
Residential | Financing Receivables, 60 to 89 Days Past Due
Financing Receivable, Recorded Investment, Aging [Abstract]
Recorded investment, past due	212	2,027	207
Residential | Financing Receivables, Equal to Greater than 90 Days Past Due
Financing Receivable, Recorded Investment, Aging [Abstract]
Recorded investment, past due	$ 1,525	$ 1,807	$ 1,610

XML

Derivative Instruments and Hedging Activities - Cash Flow Hedge Agreements (Details) - Interest Rate Swap - USD ($) $ in Thousands	3 Months Ended		12 Months Ended
	Mar. 31, 2020	Mar. 31, 2019	Dec. 31, 2019
Derivative [Line Items]
Amount of hedged item	$ 20,000
Amount of loss recognized in AOCI	(294)	$ 0	$ 0
Amount of gain reclassified from AOCI interest expense	$ 0	$ 0	$ 0

XML

Leases - Narrative (Details)	3 Months Ended
	Mar. 31, 2020 branch_office
Leases [Abstract]
Number of branch offices	5

XML

Fair Values

3 Months Ended

Mar. 31, 2020

Fair Value Disclosures [Abstract]

Fair Values

FAIR VALUES (Dollars In Thousands)

FASB ASC Subtopic 820-10 defines fair value, establishes a framework for measuring fair value in GAAP and requires certain disclosures about fair value measurements. There are no 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 March 31, 2020, December 31, 2019 and March 31, 2019 were securities available-for-sale, equity securities and derivatives. 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)
Fair Value of Assets and Liabilities Measured on a Recurring Basis:
March 31, 2020
Assets:
Securities Available-for Sale:
U.S. Government & Agency Obligations	$	5,181	$	—	$	5,181	$	—
State and Municipal Obligations	723		—		723		—
Mortgage-Backed Securities	371,482		—		371,482		—
Corporate and Other Debt Securities	800		—		800		—
Total Securities Available-for-Sale	378,186		—		378,186		—
Equity Securities	1,689		—		1,689		—
Total Securities Measured on a Recurring Basis	379,875		—		379,875		—
Derivatives, included in other assets	5,191		—		5,191		—
Total Measured on a Recurring Basis	$	385,066	$	—	$	385,066	$	—
Liabilities:
Derivatives, included in other liabilities	5,191		—		5,191		—
Total Measured on a Recurring Basis	$	5,191	$	—	$	5,191	$	—
December 31, 2019
Assets:
Securities Available-for Sale:
U.S. Government & Agency Obligations	$	5,054	$	—	$	5,054	$	—
State and Municipal Obligations	764		—		764		—
Mortgage-Backed Securities	350,716		—		350,716		—
Corporate and Other Debt Securities	800		—		800		—
Total Securities Available-for-Sale	357,334				357,334
Equity Securities	2,063		—		2,063		—
Total Securities Measured on a Recurring Basis	359,397		—		359,397		—

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)
Derivatives, included in other liabilities	69		—		69		—
Total Measured on a Recurring Basis	$	359,466	$	—	$	359,466	$	—
Liabilities:
Derivatives, included in other liabilities	$	69	$	—	$	69	$	—
Total Measured on a Recurring Basis	$	69	$	—	$	69	$	—
March 31, 2019
Assets:
Securities Available-for Sale:
U.S. Government & Agency Obligations	$	35,383	$	—	$	35,383	$	—
State and Municipal Obligations	1,116		—		1,116		—
Mortgage-Backed Securities	261,513		—		261,513		—
Corporate and Other Debt Securities	800		—		800		—
Total Securities Available-for-Sale	298,812				298,812
Equity Securities	1,850		—		1,850		—
Total Securities Measured on a Recurring Basis	$	300,662	$	—	$	300,662	$	—

	Fair Value		Quoted Prices In Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Gains (Losses) Recognized in Earnings
Fair Value of Assets and Liabilities Measured on a Nonrecurring Basis:
March 31, 2020
Collateral Dependent Impaired Loans	$	582	$	—	$	—	$	582
Other Real Estate Owned and Repossessed Assets, Net	942		—		—		942		—
December 31, 2019
Collateral Dependent Impaired Loans	$	285	$	—	$	—	$	285
Other Real Estate Owned and Repossessed Assets, Net	1,261		—		—		1,261		(186	)
March 31, 2019
Collateral Dependent Impaired Loans	$	684	$	—	$	—	$	684
Other Real Estate Owned and Repossessed Assets, Net	1,445		—		—		1,445		(101	)

The fair value of financial instruments is determined 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;

• 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).

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 services use a variety of techniques to arrive at fair value including market maker bids, quotes and pricing models.  Inputs to the pricing models include recent trades, benchmark interest rates, spreads and actual and projected cash flows.  The fair value of Level 2 derivatives is determined using inputs that are observable in the market place obtained from third parties including yield curves, publicly available volatilities, and floating indexes.

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

The fair value of collateral dependent impaired loans and other real estate owned was based on third-party appraisals less estimated cost to sell. The appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses. 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 at least annually, with no impairment recognized for these assets at March 31, 2020, December 31, 2019 and March 31, 2019.

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

The fair value for securities held-to-maturity is determined 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.

ASU 2016-01 "Recognition and Measurement of Financial Assets and Financial Liabilities" requires that the fair value for loans must be disclosed using the "exit price" notion which is a reasonable estimate of what another party might pay in an orderly transaction. Fair values for loans are calculated for portfolios of loans with similar financial characteristics.  Loans are segregated by type such as commercial, commercial real estate, residential mortgage, indirect auto 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 determining the estimated future cash flow, which is the contractual cash flow adjusted for estimated prepayments. The discount rate is determined by starting with current market yields, and first adjusting for a liquidity premium. This premium is separately determined for each loan type. Then a credit loss component is determined utilizing the credit loss assumptions used in the allowance for loan and lease loss model. Finally, a discount spread is applied separately for consumer loans vs. commercial loans based on market information and utilization of the Swap Curve.  

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 calculated by the FHLBNY.

The carrying amount of FHLBNY and FRB stock approximates fair value. If the stock was redeemed, the Company will receive an amount equal to the par value of the stock.

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.

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 Value		Fair Value		Level 1		Level 2		Level 3
March 31, 2020
Cash and Cash Equivalents	$	138,529	$	138,529	$	138,529	$	—	$	—
Securities Available-for-Sale	378,186		378,186		—		378,186		—
Securities Held-to-Maturity	238,520		242,804		—		242,804		—
Equity Securities	1,689		1,689		—		1,689		—
Federal Home Loan Bank and Federal   Reserve Bank Stock	5,379		5,379		—		5,379		—
Net Loans	2,390,556		2,368,033		—		—		2,368,033
Accrued Interest Receivable	7,856		7,856		—		7,856		—
Derivatives, included in other assets	5,191		5,191				5,191
Deposits	2,811,005		2,811,668		—		2,811,668		—
Federal Funds Purchased and Securities   Sold Under Agreements to Repurchase	57,909		57,909		—		57,909		—
Federal Home Loan Bank Term Advances	50,000		51,194		—		51,194		—
Junior Subordinated Obligations Issued   to Unconsolidated Subsidiary Trusts	20,000		20,000		—		20,000		—
Accrued Interest Payable	1,392		1,392		—		1,392		—
Derivatives, included in other liabilities	5,191		5,191		—		5,191		—

Schedule of Fair Values by Balance Sheet Grouping
					Fair Value Hierarchy
	Carrying Value		Fair Value		Level 1		Level 2		Level 3
December 31, 2019
Cash and Cash Equivalents	$	70,221	$	70,221	$	70,221	$	—	$	—
Securities Available-for-Sale	357,334		357,334		—		357,334		—
Securities Held-to-Maturity	245,065		249,618		—		249,618		—
Equity Securities	2,063		2,063		—		2,063
Federal Home Loan Bank and Federal   Reserve Bank Stock	10,317		10,317		—		10,317		—
Net Loans	2,364,933		2,332,797		—		—		2,332,797
Accrued Interest Receivable	7,377		7,377		—		7,377		—
Derivatives, included in other assets	69		69		—		69		—
Deposits	2,616,054		2,614,170		—		2,614,170		—
Federal Funds Purchased and Securities   Sold Under Agreements to Repurchase	51,099		51,099		—		51,099		—
Federal Home Loan Bank Overnight Advances	130,000		130,000		—		130,000		—
Federal Home Loan Bank Term Advances	30,000		29,993		—		29,993		—
Junior Subordinated Obligations Issued   to Unconsolidated Subsidiary Trusts	20,000		20,000		—		20,000		—
Accrued Interest Payable	1,436		1,436		—		1,436		—
Derivatives, included in other liabilities	69		69		—		69		—
March 31, 2019
Cash and Cash Equivalents	$	61,229	$	61,229	$	61,229	$	—	$	—
Securities Available-for-Sale	298,812		298,812		—		298,812		—
Securities Held-to-Maturity	279,400		280,414		—		280,414		—
Equity Securities	1,850		1,850		—		1,850
Federal Home Loan Bank and Federal   Reserve Bank Stock	7,878		7,878		—		7,878		—
Net Loans	2,214,835		2,164,298		—		—		2,164,298
Accrued Interest Receivable	8,180		8,180		—		8,180		—
Deposits	2,490,097		2,484,479		—		2,484,479		—
Federal Funds Purchased and Securities   Sold Under Agreements to Repurchase	58,407		58,407		—		58,407		—
Federal Home Loan Bank Overnight Advances	74,500		74,500		—		74,500		—
Federal Home Loan Bank Term Advances	35,000		34,805		—		34,805		—
Junior Subordinated Obligations Issued   to Unconsolidated Subsidiary Trusts	20,000		20,000		—		20,000		—
Accrued Interest Payable	737		737		—		737		—

XML

Comprehensive Income

3 Months Ended

Mar. 31, 2020

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 periods ended March 31, 2020 and 2019:

Schedule of Comprehensive Income
	Three Months Ended March 31,
				Tax
	Before-Tax			(Expense)			Net-of-Tax
	Amount			Benefit			Amount
2020
Net Unrealized Securities Holding Gains on Securities Available-for-Sale Arising During the Period	5,504			$	(1,406	)	4,098
Net Unrealized Losses on Cash Flow Swap	(294		)	75			(219		)
Amortization of Net Retirement Plan Actuarial Loss	36			(9		)	27
Amortization of Net Retirement Plan Prior Service Cost	54			(15		)	39
Other Comprehensive Income	$	5,300		$	(1,355	)	$	3,945
2019
Net Unrealized Securities Holding Gains on Securities Available-for-Sale Arising During the Period	2,788			$	(708	)	2,080
Amortization of Net Retirement Plan Actuarial Loss	163			(42		)	121
Amortization of Net Retirement Plan Prior Service Cost	56			(14		)	42
Other Comprehensive Income	$	3,007		$	(764	)	$	2,243

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

Changes in Accumulated Other Comprehensive Income (Loss) by Component (1)
	Unrealized Gains and Losses on Available-for-Sale Securities			Unrealized Loss on Cash Flow Swap			Defined Benefit Plan Items						Total
							Net Actuarial Gain (Loss)			Net Prior Service (Cost) Credit
For the Quarter-To-Date periods ended:
December 31, 2019	$	465		$	—		$	(5,847	)	$	(975	)	$	(6,357	)
Other comprehensive income or loss before reclassifications	4,098			(219		)	—			—			3,879
Amounts reclassified from accumulated other comprehensive income	—			—			27			39			66
Net current-period other comprehensive income	4,098			(219		)	27			39			3,945
March 31, 2020	$	4,563		$	(219	)	$	(5,820	)	$	(936	)	$	(2,412	)
December 31, 2018	$	(3,697	)				$	(8,971	)	$	(1,142	)	$	(13,810	)
Other comprehensive income or loss before reclassifications	2,080						—			—			2,080
Amounts reclassified from accumulated other comprehensive income	—						121			42			163
Net current-period other comprehensive income	2,080						121			42			2,243
March 31, 2019	$	(1,617	)				$	(8,850	)	$	(1,100	)	$	(11,567	)

(1) All amounts are net of tax.

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

Reclassifications Out of Accumulated Other Comprehensive Income
	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:
March 31, 2020
Amortization of defined benefit pension items:
Prior-service costs	$	(54	)	(1)	Salaries and Employee Benefits
Actuarial loss	(36		)	(1)	Salaries and Employee Benefits
	(90		)		Total before Tax
	24				Provision for Income Taxes
	$	(66	)		Net of Tax
Total reclassifications for the period	$	(66	)		Net of Tax
March 31, 2019
Amortization of defined benefit pension items:
Prior-service costs	$	(56	)	(1)	Salaries and Employee Benefits
Actuarial loss	(163		)	(1)	Salaries and Employee Benefits
	(219		)		Total before Tax
	56				Provision for Income Taxes
	$	(163	)		Net of Tax
Total reclassifications for the period	$	(163	)		Net of Tax

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

XML

Accounting Policies

3 Months Ended

Mar. 31, 2020

Accounting Policies [Abstract]

Accounting Policies

ACCOUNTING POLICIES

In the opinion of the management of Arrow Financial Corporation (Arrow, the Company, we, or us), the accompanying unaudited interim consolidated financial statements contain all of the adjustments necessary to present fairly the financial position as of March 31, 2020, December 31, 2019 and March 31, 2019; the results of operations for the three-month periods ended March 31, 2020 and 2019; the consolidated statements of comprehensive income for the three-month periods ended March 31, 2020 and 2019; the changes in stockholders' equity for the three-month periods ended March 31, 2020 and 2019; and the cash flows for the three-month periods ended March 31, 2020 and 2019. All such adjustments are of a normal recurring nature.

Management’s Use of Estimates -The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (US GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of income and expenses during the reporting period.  Due to the uncertainty regarding the impact of the COVID-19 pandemic, management utilized estimates and assumptions in its evaluation of potential impairment of the Company's right-of-use lease assets, goodwill and intangible assets. Our most significant estimate is the allowance for loan losses. Other estimates include the evaluation of other-than-temporary impairment of investment securities, pension and other post-retirement liabilities and an analysis of a need for a valuation allowance for deferred tax assets. Actual results could differ from those estimates.

A material estimate that is particularly susceptible to significant change in the near term is the allowance for loan losses.  In connection with the determination of the allowance for loan losses, management obtains appraisals for properties.  The allowance for loan losses is management’s best estimate of probable loan losses incurred as of the balance sheet date.  While management uses available information to recognize losses on loans, future adjustments to the allowance for loan losses may be necessary based on changes in economic conditions.  

The unaudited interim consolidated financial statements should be read in conjunction with the audited annual consolidated financial statements of Arrow for the year ended December 31, 2019 included in Arrow's Annual Report on Form 10-K for the year ended December 31, 2019.

The following accounting standards have been adopted in the first three months of 2020:

In August 2018, the Financial Accounting Standards Board (FASB) issued ASU 2018-13 "Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement" as part of its disclosure framework, and pursuant to which FASB has eliminated, amended and added disclosure requirements for fair value measurements. For Arrow, the standard became effective, on a prospective basis, on January 1, 2020. The adoption of this change in fair value disclosure did not have a material impact on its financial position or the results of operations in the period subsequent to its adoption.

In August 2018, the FASB issued Accounting Standards Update (ASU) 2018-15 "Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract" which will require companies to defer potentially significant, specified implementation costs incurred in a cloud computing arrangement that are currently often expensed under US GAAP. For Arrow, the standard was adopted, on a prospective basis, on January 1, 2020. The adoption of this standard did not have a material impact on its financial position or the results of operations in the period subsequent to its adoption.

In October 2018, the FASB issued ASU No. 2018-17, Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities ("ASU 2018-17"). ASU 2018-17 provides that indirect interests held through related parties in common control arrangements should be considered on a proportional basis for determining whether fees paid to decision makers and service providers are variable interests. For Arrow, the standard was effective on January 1, 2020 and the adoption of this standard did not have a material impact on its financial position or the results of operations in the period subsequent to its adoption.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting ("ASU 2020-04"). ASU 2020-04 provides companies with optional guidance to ease the potential accounting burden associated with transitioning away from reference rates that are expected to be discontinued, such as LIBOR. Companies can apply the ASU immediately. However, the guidance will only be available for a limited time (generally through December 31, 2022), and provides optional relief for contract modifications, hedge accounting and Held-to-maturity debt securities. For Arrow, this standard was effective January 1, 2020 and can be applied prospectively beginning January 1, 2020 for contract modifications and hedging relationships. The one-time election to sell and/or transfer securities classified as Held-to-maturity may be made at any point after March 12, 2020. Arrow is evaluating the impact of this standard as it will provide relief for contracts currently tied to LIBOR and hedge accounting relationships.

XML

Investment Securities - Available for Sale (Details) $ in Thousands	Mar. 31, 2020 USD ($) security	Dec. 31, 2019 USD ($) security	Mar. 31, 2019 USD ($) security
Available-For-Sale Securities
Available-For-Sale Securities, at Amortized Cost	$ 372,058	$ 356,710	$ 300,980
Gross Unrealized Gains	7,663	1,904	659
Gross Unrealized Losses	(1,535)	(1,280)	(2,827)
Available-for-Sale at Fair Value	378,186	357,334	298,812
Maturities of Debt Securities, at Amortized Cost:
Within One Year	14,227
From 1 - 5 Years	330,493
From 5 - 10 Years	26,898
Over 10 Years	440
Maturities of Debt Securities, at Fair Value:
Within One Year	14,642
From 1 - 5 Years	336,860
From 5 - 10 Years	26,244
Over 10 Years	440
Securities in a Continuous Loss Position, at Fair Value:
Less than 12 Months	18,846	52,491	53,131
12 Months or Longer	60,062	97,964	191,291
Total	$ 78,908	$ 150,455	$ 244,422
Number of Securities in a Continuous Loss Position | security	28	55	88
Unrealized Losses on Securities in a Continuous Loss Position:
Less than 12 Months	$ 316	$ 317	$ 258
12 Months or Longer	1,219	963	2,569
Total	1,535	1,280	2,827
Collateral Pledged
Available-For-Sale Securities
Available-For-Sale Securities, Pledged as Collateral, at Fair Value	273,124	164,426	255,028
U.S. Government & Agency Obligations
Available-For-Sale Securities
Available-For-Sale Securities, at Amortized Cost	5,002	5,002	35,519
Gross Unrealized Gains	179	52	0
Gross Unrealized Losses	0	0	(136)
Available-for-Sale at Fair Value	5,181	5,054	35,383
Maturities of Debt Securities, at Amortized Cost:
Within One Year	0
From 1 - 5 Years	5,002
From 5 - 10 Years	0
Over 10 Years	0
Maturities of Debt Securities, at Fair Value:
Within One Year	0
From 1 - 5 Years	5,181
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	35,383
Total	$ 0	$ 0	$ 35,383
Number of Securities in a Continuous Loss Position | security	0	0	7
Unrealized Losses on Securities in a Continuous Loss Position:
Less than 12 Months	$ 0	$ 0	$ 0
12 Months or Longer	0	0	136
Total	0	0	136
U.S. Government & Agency Obligations | Agency Securities
Available-For-Sale Securities
Available-For-Sale Securities, at Amortized Cost	5,002	5,002	35,519
Available-for-Sale at Fair Value	5,181	5,054	35,383
State and Municipal Obligations
Available-For-Sale Securities
Available-For-Sale Securities, at Amortized Cost	723	764	1,114
Gross Unrealized Gains	0	0	2
Gross Unrealized Losses	0	0	0
Available-for-Sale at Fair Value	723	764	1,116
Maturities of Debt Securities, at Amortized Cost:
Within One Year	26
From 1 - 5 Years	257
From 5 - 10 Years	0
Over 10 Years	440
Maturities of Debt Securities, at Fair Value:
Within One Year	26
From 1 - 5 Years	257
From 5 - 10 Years	0
Over 10 Years	440
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 | security	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
Mortgage- Backed Securities
Available-For-Sale Securities
Available-For-Sale Securities, at Amortized Cost	365,333	349,944	263,347
Gross Unrealized Gains	7,484	1,852	657
Gross Unrealized Losses	(1,335)	(1,080)	(2,491)
Available-for-Sale at Fair Value	371,482	350,716	261,513
Maturities of Debt Securities, at Amortized Cost:
Within One Year	14,201
From 1 - 5 Years	325,234
From 5 - 10 Years	25,898
Over 10 Years	0
Maturities of Debt Securities, at Fair Value:
Within One Year	14,616
From 1 - 5 Years	331,422
From 5 - 10 Years	25,444
Over 10 Years	0
Securities in a Continuous Loss Position, at Fair Value:
Less than 12 Months	18,846	52,491	53,131
12 Months or Longer	59,262	97,164	155,108
Total	$ 78,108	$ 149,655	$ 208,239
Number of Securities in a Continuous Loss Position | security	27	54	80
Unrealized Losses on Securities in a Continuous Loss Position:
Less than 12 Months	$ 316	$ 317	$ 258
12 Months or Longer	1,019	763	2,233
Total	1,335	1,080	2,491
Mortgage- Backed Securities | US Government Agencies Debt Securities
Available-For-Sale Securities
Available-For-Sale Securities, at Amortized Cost	58,089	61,102	70,358
Available-for-Sale at Fair Value	57,091	60,616	70,034
Mortgage- Backed Securities | US Government-sponsored Enterprises Debt Securities
Available-For-Sale Securities
Available-For-Sale Securities, at Amortized Cost	307,244	288,842	192,989
Available-for-Sale at Fair Value	314,391	290,100	191,479
Corporate and Other Debt Securities
Available-For-Sale Securities
Available-For-Sale Securities, at Amortized Cost	1,000	1,000	1,000
Gross Unrealized Gains	0	0	0
Gross Unrealized Losses	(200)	(200)	(200)
Available-for-Sale at Fair Value	800	800	800
Maturities of Debt Securities, at Amortized Cost:
Within One Year	0
From 1 - 5 Years	0
From 5 - 10 Years	1,000
Over 10 Years	0
Maturities of Debt Securities, at Fair Value:
Within One Year	0
From 1 - 5 Years	0
From 5 - 10 Years	800
Over 10 Years	0
Securities in a Continuous Loss Position, at Fair Value:
Less than 12 Months	0	0	0
12 Months or Longer	800	800	800
Total	$ 800	$ 800	$ 800
Number of Securities in a Continuous Loss Position | security	1	1	1
Unrealized Losses on Securities in a Continuous Loss Position:
Less than 12 Months	$ 0	$ 0	$ 0
12 Months or Longer	200	200	200
Total	$ 200	$ 200	$ 200

XML

Loans Supplemental Loan Information (Details) - Consumer	3 Months Ended
	Mar. 31, 2020
Automobile Loan | Minimum
Schedule of Financing Receivable Terms [Line Items]
Principal repayment terms, period	3 years
Automobile Loan | Maximum
Schedule of Financing Receivable Terms [Line Items]
Principal repayment terms, period	7 years
Credit Card Receivable | Minimum
Schedule of Financing Receivable Terms [Line Items]
Principal repayment terms, period	1 year
Credit Card Receivable | Maximum
Schedule of Financing Receivable Terms [Line Items]
Principal repayment terms, period	5 years

XML

Derivative Instruments and Hedging Activities - Interest Rate Swap Agreements (Details) - Not Designated as Hedging Instrument - Interest Rate Swap - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019	Mar. 31, 2019
Derivative [Line Items]
Notional amount	$ 121,559	$ 44,531	$ 0
Other Assets
Derivative [Line Items]
Derivative asset	5,191	69	0
Other Liabilities
Derivative [Line Items]
Derivative liability	$ 5,191	$ 69	$ 0

XML

Fair Values - Fair Value by Balance Sheet Grouping (Details) - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019	Mar. 31, 2019	Dec. 31, 2018
Carrying Value
Cash and Cash Equivalents	$ 138,529	$ 70,221	$ 61,229	$ 84,239
Available-for-Sale at Fair Value	378,186	357,334	298,812
Securities Held-to-Maturity	238,520	245,065	279,400
Equity Securities	1,689	2,063	1,850
Net Loans	2,390,556	2,364,933	2,214,835
Deposits	2,811,005	2,616,054	2,490,097
Federal Funds Purchased and Securities Sold Under Agreements to Repurchase	57,909	51,099	58,407
Federal Home Loan Bank Overnight Advances	0	130,000	74,500
Federal Home Loan Bank Term Advances	50,000	30,000	35,000
Junior Subordinated Obligations Issued to Unconsolidated Subsidiary Trusts	20,000	20,000	20,000
Fair Value
Available-for-Sale	378,186	357,334	298,812
Securities Held-to-Maturity	242,804	249,618	280,414
Equity Securities	1,689	2,063	1,850
Carrying Amount
Carrying Value
Cash and Cash Equivalents	138,529	70,221	61,229
Available-for-Sale at Fair Value	378,186	357,334	298,812
Securities Held-to-Maturity	238,520	245,065	279,400
Equity Securities	1,689	2,063	1,850
Federal Home Loan Bank and Federal Reserve Bank Stock	5,379	10,317	7,878
Net Loans	2,390,556	2,364,933	2,214,835
Accrued Interest Receivable	7,856	7,377	8,180
Derivatives, included in other assets	5,191	69
Deposits	2,811,005	2,616,054	2,490,097
Federal Funds Purchased and Securities Sold Under Agreements to Repurchase	57,909	51,099	58,407
Federal Home Loan Bank Overnight Advances		130,000	74,500
Federal Home Loan Bank Term Advances	50,000	30,000	35,000
Junior Subordinated Obligations Issued to Unconsolidated Subsidiary Trusts	20,000	20,000	20,000
Accrued Interest Payable	1,392	1,436	737
Derivatives, included in other liabilities	5,191	69
Fair Value
Available-for-Sale	378,186	357,334	298,812
Equity Securities	1,689	2,063	1,850
Derivatives, included in other assets	5,191	69
Derivatives, included in other liabilities	5,191	69
Fair Value
Carrying Value
Available-for-Sale at Fair Value	378,186	357,334	298,812
Equity Securities	1,689	2,063	1,850
Derivatives, included in other assets	5,191	69
Derivatives, included in other liabilities	5,191	69
Fair Value
Cash and Cash Equivalents	138,529	70,221	61,229
Available-for-Sale	378,186	357,334	298,812
Securities Held-to-Maturity	242,804	249,618	280,414
Equity Securities	1,689	2,063	1,850
Federal Home Loan Bank and Federal Reserve Bank Stock, Fair Value	5,379	10,317	7,878
Net Loans, at Fair Value	2,368,033	2,332,797	2,164,298
Accrued Interest Receivable	7,856	7,377	8,180
Derivatives, included in other assets	5,191	69
Deposits	2,811,668	2,614,170	2,484,479
Federal Funds Purchased and Securities Sold Under Agreements to Repurchase	57,909	51,099	58,407
Federal Home Loan Bank Overnight Advances		130,000	74,500
Federal Home Loan Bank Term Advances	51,194	29,993	34,805
Junior Subordinated Obligations Issued to Unconsolidated Subsidiary Trusts	20,000	20,000	20,000
Accrued Interest Payable	1,392	1,436	737
Derivatives, included in other liabilities	5,191	69
Quoted Prices In Active Markets for Indentical Assets (Level 1) | Fair Value
Carrying Value
Available-for-Sale at Fair Value	0	0	0
Equity Securities	0		0
Derivatives, included in other assets		0
Derivatives, included in other liabilities	0	0
Fair Value
Cash and Cash Equivalents	138,529	70,221	61,229
Available-for-Sale	0	0	0
Securities Held-to-Maturity	0	0	0
Equity Securities	0		0
Federal Home Loan Bank and Federal Reserve Bank Stock, Fair Value	0	0	0
Net Loans, at Fair Value	0	0	0
Accrued Interest Receivable	0	0	0
Derivatives, included in other assets		0
Deposits	0	0	0
Federal Funds Purchased and Securities Sold Under Agreements to Repurchase	0	0	0
Federal Home Loan Bank Overnight Advances		0	0
Federal Home Loan Bank Term Advances	0	0	0
Junior Subordinated Obligations Issued to Unconsolidated Subsidiary Trusts	0	0	0
Accrued Interest Payable	0	0	0
Derivatives, included in other liabilities	0	0
Significant Other Observable Inputs (Level 2) | Fair Value
Carrying Value
Available-for-Sale at Fair Value	378,186	357,334	298,812
Equity Securities	1,689	2,063	1,850
Derivatives, included in other assets	5,191	69
Derivatives, included in other liabilities	5,191	69
Fair Value
Cash and Cash Equivalents	0	0	0
Available-for-Sale	378,186	357,334	298,812
Securities Held-to-Maturity	242,804	249,618	280,414
Equity Securities	1,689	2,063	1,850
Federal Home Loan Bank and Federal Reserve Bank Stock, Fair Value	5,379	10,317	7,878
Net Loans, at Fair Value	0	0	0
Accrued Interest Receivable	7,856	7,377	8,180
Derivatives, included in other assets	5,191	69
Deposits	2,811,668	2,614,170	2,484,479
Federal Funds Purchased and Securities Sold Under Agreements to Repurchase	57,909	51,099	58,407
Federal Home Loan Bank Overnight Advances		130,000	74,500
Federal Home Loan Bank Term Advances	51,194	29,993	34,805
Junior Subordinated Obligations Issued to Unconsolidated Subsidiary Trusts	20,000	20,000	20,000
Accrued Interest Payable	1,392	1,436	737
Derivatives, included in other liabilities	5,191	69
Significant Unobservable Inputs (Level 3) | Fair Value
Carrying Value
Available-for-Sale at Fair Value	0	0	0
Equity Securities	0
Derivatives, included in other assets		0
Derivatives, included in other liabilities	0	0
Fair Value
Cash and Cash Equivalents	0	0	0
Available-for-Sale	0	0	0
Securities Held-to-Maturity	0	0	0
Equity Securities	0
Federal Home Loan Bank and Federal Reserve Bank Stock, Fair Value	0	0	0
Net Loans, at Fair Value	2,368,033	2,332,797	2,164,298
Accrued Interest Receivable	0	0	0
Derivatives, included in other assets		0
Deposits	0	0	0
Federal Funds Purchased and Securities Sold Under Agreements to Repurchase	0	0	0
Federal Home Loan Bank Overnight Advances		0	0
Federal Home Loan Bank Term Advances	0	0	0
Junior Subordinated Obligations Issued to Unconsolidated Subsidiary Trusts	0	0	0
Accrued Interest Payable	0	0	$ 0
Derivatives, included in other liabilities	$ 0	$ 0

XML

Comprehensive Income Other Comprehensive Income (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Before-Tax Amount
Other Comprehensive Income	$ 5,300	$ 3,007
Tax (Expense) Benefit
Other Comprehensive Income	(1,355)	(764)
Net of Tax Amount
Net Unrealized Securities Holding Gains on Securities Available-for-Sale Arising During the Period	3,879	2,080
Amortization of Net Retirement Plan	66	163
Other Comprehensive Income	3,945	2,243
Unrealized Gains and Losses on Available for Sale Securities
Before-Tax Amount
Net Unrealized Securities Holding Gains on Securities Available-for-Sale Arising During the Period	5,504	2,788
Tax (Expense) Benefit
Net Unrealized Securities Holding Gains on Securities Available-for-Sale Arising During the Period	(1,406)	(708)
Net of Tax Amount
Net Unrealized Securities Holding Gains on Securities Available-for-Sale Arising During the Period	4,098	2,080
Amortization of Net Retirement Plan	0	0
Unrealized Loss on Cash Flow Swap
Before-Tax Amount
Net Unrealized Losses on Cash Flow Swap	(294)
Tax (Expense) Benefit
Net Unrealized Losses on Cash Flow Swap	75
Net of Tax Amount
Net Unrealized Securities Holding Gains on Securities Available-for-Sale Arising During the Period	(219)
Net Unrealized Losses on Cash Flow Swap	(219)
Amortization of Net Retirement Plan	0
Amortization of Net Retirement Plan Actuarial Gain (Loss)
Before-Tax Amount
Amortization of Net Retirement Plan	36	163
Tax (Expense) Benefit
Amortization of Net Retirement Plan	(9)	(42)
Net of Tax Amount
Net Unrealized Securities Holding Gains on Securities Available-for-Sale Arising During the Period	0	0
Amortization of Net Retirement Plan	27	121
Accumulated Defined Benefit Plans Adjustment, Net Prior Service
Before-Tax Amount
Amortization of Net Retirement Plan	54	56
Tax (Expense) Benefit
Amortization of Net Retirement Plan	(15)	(14)
Net of Tax Amount
Amortization of Net Retirement Plan	$ 39	$ 42

XML

Stock-Based Compensation - Restricted Stock Units (Details) - Restricted Stock Units (RSU) - $ / shares	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Restricted Stock Units
Balance at Beginning of Period (in shares)	7,496	3,478
Granted (in shares)	3,827	4,018
Balance at End of Period (in shares)	11,323	7,496
Weighted Average Grant Date Fair Value
Outstanding at Beginning of period (in dollars per share)	$ 31.18	$ 31.62
Granted (in dollars per share)	35.28	30.79
Outstanding at End of period (in dollars per share)	$ 32.57	$ 31.18

XML

Consolidated Statements of Comprehensive Income - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Statement of Comprehensive Income [Abstract]
Net Income	$ 8,127	$ 8,734
Other Comprehensive Income, Net of Tax:
Net Unrealized Securities Holding Gains Arising During the Period	4,098	2,080
Net Unrealized Loss on Cash Flow Hedge Agreements	(219)	0
Amortization of Net Retirement Plan Actuarial Loss	27	121
Amortization of Net Retirement Plan Prior Service Cost	39	42
Other Comprehensive Income	3,945	2,243
Comprehensive Income	$ 12,072	$ 10,977

XML

Consolidated Balance Sheets - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019	Mar. 31, 2019
ASSETS
Cash and Due From Banks	$ 32,525	$ 47,035	$ 36,198
Interest-Bearing Deposits at Banks	106,004	23,186	25,031
Investment Securities:
Available-for-Sale at Fair Value	378,186	357,334	298,812
Held-to-Maturity (Approximate Fair Value of $242,804 at March 31, 2020; $249,618 at December 31, 2019; and $280,414 at March 31, 2019)	238,520	245,065	279,400
Equity Securities	1,689	2,063	1,850
FHLB and Federal Reserve Bank Stock	5,379	10,317	7,878
Loans	2,414,193	2,386,120	2,235,208
Allowance for Loan Losses	(23,637)	(21,187)	(20,373)
Net Loans	2,390,556	2,364,933	2,214,835
Premises and Equipment, Net	40,987	40,629	34,949
Goodwill	21,873	21,873	21,873
Other Intangible Assets, Net	1,640	1,661	1,777
Other Assets	73,973	70,179	62,280
Total Assets	3,291,332	3,184,275	2,984,883
LIABILITIES
Noninterest-Bearing Deposits	489,151	484,944	453,089
Interest-Bearing Checking Accounts	793,425	689,221	823,301
Savings Deposits	1,146,683	1,046,568	866,861
Time Deposits over $250,000	135,854	123,968	83,834
Other Time Deposits	245,892	271,353	263,012
Total Deposits	2,811,005	2,616,054	2,490,097
Federal Funds Purchased and Securities Sold Under Agreements to Repurchase	57,909	51,099	58,407
Federal Home Loan Bank Overnight Advances	0	130,000	74,500
Federal Home Loan Bank Term Advances	50,000	30,000	35,000
Junior Subordinated Obligations Issued to Unconsolidated Subsidiary Trusts	20,000	20,000	20,000
Finance Leases	5,249	5,254	2,946
Other Liabilities	37,771	30,140	27,324
Total Liabilities	2,981,934	2,882,547	2,708,274
STOCKHOLDERS’ EQUITY
Preferred Stock, $1 Par Value and 1,000,000 Shares Authorized at March 31, 2020 and December 31, 2019; $5 Par Value and 1,000,000 Shares Authorized at March 31, 2019	0	0	0
Common Stock, $1 Par Value; 30,000,000 Shares Authorized at March 31, 2020 and December 31, 2019 and 20,000,000 Shares Authorized at March 31, 2019 (19,606,449 Shares Issued at March 31, 2020 and December 31, 2019 and 19,035,565 at March 31, 2019)	19,606	19,606	19,035
Additional Paid-in Capital	336,021	335,355	315,262
Retained Earnings	37,441	33,218	34,231
Unallocated ESOP Shares (None at March 31, 2020 and December 31, 2019 and 5,501 Shares at March 31, 2019)	0	0	(100)
Accumulated Other Comprehensive Loss	(2,412)	(6,357)	(11,567)
Treasury Stock, at Cost (4,624,348 Shares at March 31, 2020; 4,608,258 Shares at December 31, 2019 and 4,556,083 Shares at March 31, 2019)	(81,258)	(80,094)	(80,252)
Total Stockholders’ Equity	309,398	301,728	276,609
Total Liabilities and Stockholders’ Equity	$ 3,291,332	$ 3,184,275	$ 2,984,883

XML

Comprehensive Income (Tables)

3 Months Ended

Mar. 31, 2020

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

Schedule of Comprehensive Income

The following table presents the components of other comprehensive income for the three-month periods ended March 31, 2020 and 2019:

Schedule of Comprehensive Income
	Three Months Ended March 31,
				Tax
	Before-Tax			(Expense)			Net-of-Tax
	Amount			Benefit			Amount
2020
Net Unrealized Securities Holding Gains on Securities Available-for-Sale Arising During the Period	5,504			$	(1,406	)	4,098
Net Unrealized Losses on Cash Flow Swap	(294		)	75			(219		)
Amortization of Net Retirement Plan Actuarial Loss	36			(9		)	27
Amortization of Net Retirement Plan Prior Service Cost	54			(15		)	39
Other Comprehensive Income	$	5,300		$	(1,355	)	$	3,945
2019
Net Unrealized Securities Holding Gains on Securities Available-for-Sale Arising During the Period	2,788			$	(708	)	2,080
Amortization of Net Retirement Plan Actuarial Loss	163			(42		)	121
Amortization of Net Retirement Plan Prior Service Cost	56			(14		)	42
Other Comprehensive Income	$	3,007		$	(764	)	$	2,243

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 Gains and Losses on Available-for-Sale Securities			Unrealized Loss on Cash Flow Swap			Defined Benefit Plan Items						Total
							Net Actuarial Gain (Loss)			Net Prior Service (Cost) Credit
For the Quarter-To-Date periods ended:
December 31, 2019	$	465		$	—		$	(5,847	)	$	(975	)	$	(6,357	)
Other comprehensive income or loss before reclassifications	4,098			(219		)	—			—			3,879
Amounts reclassified from accumulated other comprehensive income	—			—			27			39			66
Net current-period other comprehensive income	4,098			(219		)	27			39			3,945
March 31, 2020	$	4,563		$	(219	)	$	(5,820	)	$	(936	)	$	(2,412	)
December 31, 2018	$	(3,697	)				$	(8,971	)	$	(1,142	)	$	(13,810	)
Other comprehensive income or loss before reclassifications	2,080						—			—			2,080
Amounts reclassified from accumulated other comprehensive income	—						121			42			163
Net current-period other comprehensive income	2,080						121			42			2,243
March 31, 2019	$	(1,617	)				$	(8,850	)	$	(1,100	)	$	(11,567	)

(1) All amounts are net of tax.

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
	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:
March 31, 2020
Amortization of defined benefit pension items:
Prior-service costs	$	(54	)	(1)	Salaries and Employee Benefits
Actuarial loss	(36		)	(1)	Salaries and Employee Benefits
	(90		)		Total before Tax
	24				Provision for Income Taxes
	$	(66	)		Net of Tax
Total reclassifications for the period	$	(66	)		Net of Tax
March 31, 2019
Amortization of defined benefit pension items:
Prior-service costs	$	(56	)	(1)	Salaries and Employee Benefits
Actuarial loss	(163		)	(1)	Salaries and Employee Benefits
	(219		)		Total before Tax
	56				Provision for Income Taxes
	$	(163	)		Net of Tax
Total reclassifications for the period	$	(163	)		Net of Tax

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

XML

Accounting Policies (Policies)

3 Months Ended

Mar. 31, 2020

Accounting Policies [Abstract]

Management's Use of Estimates

Management’s Use of Estimates -The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (US GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of income and expenses during the reporting period.  Due to the uncertainty regarding the impact of the COVID-19 pandemic, management utilized estimates and assumptions in its evaluation of potential impairment of the Company's right-of-use lease assets, goodwill and intangible assets. Our most significant estimate is the allowance for loan losses. Other estimates include the evaluation of other-than-temporary impairment of investment securities, pension and other post-retirement liabilities and an analysis of a need for a valuation allowance for deferred tax assets. Actual results could differ from those estimates.

A material estimate that is particularly susceptible to significant change in the near term is the allowance for loan losses.  In connection with the determination of the allowance for loan losses, management obtains appraisals for properties.  The allowance for loan losses is management’s best estimate of probable loan losses incurred as of the balance sheet date.  While management uses available information to recognize losses on loans, future adjustments to the allowance for loan losses may be necessary based on changes in economic conditions.