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Derivative Instruments and Hedging Activities
 9 Months Ended
Sep. 30, 2025
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. Arrow 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, Arrow 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 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 Arrow's assets or liabilities. Arrow's goal is to have 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 entering 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 material interest rate exposure to Arrow's consolidated statements of income. Arrow 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, not designated as hedging instruments, outstanding as well as the notional amount of the interest rate swap agreements:

Derivatives Not Designated as Hedging Instruments - Interest Rate Swap Agreements
September 30, 2025December 31, 2024
Fair value adjustment included in other assets $3,504 $5,520 
Fair value adjustment included in other liabilities3,504 5,520 
Notional amount119,701 104,897 

Derivatives Designated as Hedging Instruments
In the third quarter of 2023, Arrow had entered into two pay-fixed portfolio layer method ("PLM") fair value swaps, designated as hedging instruments, with a total notional amount of $250 million and $50 million, respectively. Arrow had designated the fair value swaps under PLM. Under PLM, the hedged items are designated as hedged layers of a closed portfolio of financial loans that are anticipated to remain outstanding for the designated hedged period.
In the third quarter of 2025, Arrow voluntarily terminated the fair value swaps as part of Arrow's ongoing interest-rate risk management resulting in a cash payment of approximately $3.0 million to settle the derivative liabilities. The cumulative fair value adjustment of approximately $3.0 million recorded on the hedged loans remains as part of the carrying amount of those loans and will be amortized over the remaining contractual life of more than 15 years of the previously hedged portfolio.
The amortization of the loss related to the fair value swaps on the Consolidated Balance Sheets will be adjusted through interest income. The amortization of the loss for the third quarter of 2025 was approximately $26 thousand. Following the termination, Arrow no longer has derivatives designated as fair value hedges.
The following table depicts the fair value adjustment recorded related to the notional amount of derivatives, designed as hedging instruments, outstanding as well as the notional amount of the interest rate swap agreements:
Derivatives Designated as Hedging Instruments - Fair Value Agreements
September 30, 2025December 31, 2024
Fair value adjustment included in other assets $— $— 
Fair value adjustment included in other liabilities— 2,263 
Notional amount— 300,000 

The following table summarizes the effect of the fair value hedging relationship recognized on the unaudited interim consolidated statement of income:
Derivatives Designated as Hedging Instruments - Fair Value Agreements
Nine Months EndedNine Months Ended
September 30, 2025September 30, 2024
Hedged Asset$— $6,544 
Fair value derivative designated as hedging instrument— (6,541)
Cumulative gain recognized in the consolidated statements of income with interest and fees on loans— 3 

The following table represents the carrying value of the PLM hedged assets and the cumulative fair value hedging adjustment included in the carrying value of the hedged asset:
Derivatives Designated as Hedging Instruments - Fair Value Swap Agreements
September 30, 2025December 31, 2024
Carrying Value of Portfolio Layer Method Hedged Asset$— $302,234 
Cumulative Fair Value Hedging Adjustment— 2,234 

In the third quarter of 2024, Arrow entered into a forward interest rate swap agreement which commenced in the first quarter of 2025, designated as hedging instruments, to add stability to interest expense and to manage its exposure to the variability of the future cash flows attributable to the contractually specified interest rates. The notional amount is $125 million and will synthetically fix the variable rate interest payments. The effective fixed rate is 3.29% until maturity. Arrow entered into pay-fixed interest rate swaps to convert rolling 90 days brokered deposits.
For derivatives 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.
The following table indicates the effect of cash flow hedge accounting on accumulated other comprehensive income (“AOCI”) and on the consolidated statement of income.

Derivatives Designated as Hedging Instruments - Cash Flow Hedge Agreements
Three Months EndedThree Months EndedNine Months EndedNine Months Ended
September 30, 2025September 30, 2024September 30, 2025September 30, 2024
Fair value adjustment included in other assets$350 $287 $350 $287 
Amount of gain (loss) recognized in AOCI142 (287)(540)(287)
Amount of gain reclassified from AOCI interest expense342 — 866 — 

In the fourth quarter of 2023, Arrow entered into two interest rate swaps, designated as hedging instruments, to add stability to interest expense and to manage its exposure to the variability of the future cash flows attributable to the contractually specified interest rates. The notional amounts were $100 million and $75 million, respectively. Arrow entered into pay-fixed interest rate swaps to convert rolling 90 days brokered deposits.
In the third quarter of 2025, Arrow voluntarily terminated these swaps as part of Arrow's ongoing interest-rate risk management and concurrently entered into two new pay-fixed, receive-variable longer termed swaps with lower fixed rates and identical notional amounts. The benefit of the lower fixed rates will be partially offset by early termination fees of $1.4 million that will be amortized over the life of the terminated swaps.
For derivatives 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 in which the hedged forecasted transaction affects earnings.
The following table indicates the effect of cash flow hedge accounting on AOCI and on the consolidated statement of income.
Derivatives Designated as Hedging Instruments - Cash Flow Hedge Agreements
Three Months EndedThree Months EndedNine Months EndedNine Months Ended
September 30, 2025September 30, 2024September 30, 2025September 30, 2024
Fair value adjustment included in other liabilities$44 $3,316 $44 $3,316 
Amount of gain (loss) recognized in AOCI184 (3,227)(554)747 
Amount of gain reclassified from AOCI interest expense44 1,837 91 1,353 

In 2019, Arrow 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.
The following table indicates the effect of cash flow hedge accounting on AOCI and on the consolidated statement of income.

Derivatives Designated as Hedging Instruments - Cash Flow Hedge Agreements
Three Months EndedThree Months EndedNine Months EndedNine Months Ended
September 30, 2025September 30, 2024September 30, 2025September 30, 2024
Fair value adjustment included in other assets$4,445 $4,501 $4,445 $4,501 
Amount of (loss) recognized in AOCI(864)(1,153)(1,206)(1,226)
Amount of (loss) gain reclassified from AOCI to interest expense(686)1,213 (269)729 

For derivatives 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.